Passage 1
The World Economy
Canada's new Liberal government "has to start rebuilding the economy, "Dornbusch writes. "Public finance is rotten; industry is dull. But... there is an understanding of what has to happen."
Inflation is lower in Canada than in the US, allowing the Bank of Canada to lower interest rates over the next year without much risk of a rout for the Canadian dollar on foreign exchange markets The Japanese economy remains in trouble, with output falling two quarters in a row for the first time in decades. An appreciation of more than 15 per cent in real terms in the yen over the past two years has hurt Japanese competitiveness Dornbusch notes. The fiscal package to stimulate the econ- omy, to be implemented next April, "will help some but not much"
At best, Dombusch predicts, the Japanese economy will grow a real per cent next year. Japan which business is singularly ill-equipped to handle The entire belief system of decades-superiority of the Japanese culture and business system, sustained growth, social cohe- ent, accommodating finance, the US can be managed-are all up for grabs. Bad news!
Outside Japan, Asia booms. China tried to slow down its economy, but apparently abandoned that effort at a Communist Party meeting last month. Growth in national output is expected to run at an astonishing 13 per cent this year.
South Korea has its woes, and so do a few other economies, Dornbusch notes. But"there are no major obstacles to continued growth in Asia: savings rates are high access to external capital is plentiful, and the world trading system is staying open. Asia cannot fail to do well."

The Japanese people have lost their total confidence in the belief system built up over many years.