To: The new president of the LDP
From: Japan's friends in Washington
Compiled and edited by Ronald Morse

Congratulations on your selection as President of the Liberal Democratic Party. Between now and the time that you are sworn in as the next prime minister, you and your senior advisers have to make some courageous decisions. Keep in mind that you wanted this job and you fought hard to get it. Now, that you have it, you have to prove that you are up to the task and can avoid going down in flames like the last seven prime ministers.

To assist you in setting your priorities, your friends in Washington have compiled a list of three short recommendations that we believe are important to Japan, to the future of the U.S.-Japan partnership, and the restoration of economic prosperity in Asia.

A note of caution. Our advice is direct and tough. Please don't confuse it with the mushy and often conflicting signals coming out of the U.S. Embassy in Tokyo. Also, remember that the Clinton administration will be focused on the results of your decisions, not on your promises. The operative principle in Washington toward what you will do is, "trust but verify."

Also, please use your good common sense. You must understand that you have nothing to lose by being bold and decisive. No matter what policies you adopt, you will be judged a failure. The challenge ahead is awesome. You are just the latest caretaker of a very sick economy. The process of Japan's restructuring will take more time than you have and it will be more painful than anyone realizes. There are no quick fixes. The prospects are grim. For the next two years, the unemployment rate will rise and growth will be slow or near zero. Bad companies will fail and foreign companies will buy up what has remaining value.

OUR RECOMENDATIONS
1) Refocus Your Terms of Reference
Immediately, you have to make a choice that Prime Minister Ryutaro Hashimoto never fully understood. That is, "Do you want to save the special interests and protectionists who support the Liberal

Japan is big enough to make a difference. You will soon be the political leader of the second-largest economy in the world. You and your party still control the instruments of national economic policy and you are the only ones who can engineer the reallocation of Japan's public resources. Try to put a little backbone into your own decision-making! Your friends can give you their best advice, but in the end, you have decide how to apply it. Economists and bureaucrats can also assist you, but setting priorities and making choices is still your job.

For years, Washington has called on Tokyo to alter its priorities and policies. But now your own people have used the power of the ballot box to express firmly and clearly how bankrupt the ideas of Japan's economic nationalists are in dealing with the nation's problems. Japan will not bounce back unless the LDP abolishes regulations, stops misallocating public resources (taxes and savings) into corrupt public works and agricultural projects and invests in the dynamic restructuring of the Japanese economy.

We pray that you understand these issues. But to be honest, we doubt the collective ability of the LDP to reform its narrowly defined and inward-looking mentality and change the policies that have misguided the Japanese nation for eight years. Unfortunately, the process leading to your selection as party president has only exacerbated the factional conflicts within the LDP.

You don't have much time to make these tough and painful decisions. For one thing, the global markets will tolerate few delays. To restore confidence in Japan's ability to act, you must immediately announce a couple of dramatic programs with precise and swift implementation schedule. This will create a demonstration effect that might provide you a window of opportunity to plan your next set of steps.

2) Recognize that the Stakes are High
We would like you to ponder a couple of questions. First, do you want the Japanese economy to melt

As you have been informed, Japan is dangerously ignored in Washington. Last week in desperation, a prominent member of Congress and a friend of Japan, suggested that it was time to call a world summit on Japan (a sort of G-22 that includes Asian nations) before Tokyo destroys the world economy. There are any number of proposals floating around about how to snub Japanese leaders.

The Clinton administration, exhausted and angered at Tokyo's continued lack of vision on these issues, is increasingly placing its hopes for assistance on Asian stability in China. Japan supports U.S. dominance in Asia and it supports a U.S. military role in Asia, but China is fast becoming America's partner of strategic choice in the region.

Japan's critics are also suggesting that Japan's kamikaze-like attack on the world economy just might have the same consequences as the attack on Pearl Harbor -- forcing America and China into an even deeper alliance and bringing the wrath of the world down on Tokyo.

3) Build on Japan's Strength
Don't forget that Japan's comparative economic advantage has been in business and trade. Your task now is to revive the conditions in which private-sector competition can again thrive.

The Japan-U.S. Business Conference in Tokyo last week called for aggressive action on a "Total Plan" for economic reform. Their advice to you was to refocus on fundamentals -- interest rates are too low and Japanese investors have no confidence in the Japanese market. Your assignment is clear: You must restore robust, demand-led growth; strengthen Japan's financial system; and take comprehensive steps toward deregulation and market opening.

The United States alone cannot continue to bear the burden of Asia's export needs. The speed and efficiency with which you act on economic reform could very well determine whether the Asian economic crisis forces a global recession or paves the way to economic health for the region.

Ronald Morse is professor of international economics and business administration at Reitaku University.