Japan's finance minister denies he was drunk at a G7 news conference but opposition lawmakers sense blood in the water and are demanding he be fired, adding yet more pressure on a deeply unpopular government that faces an election this year.

The story is the Internet phenomenon of the day in Japan as TV stations and newspapers issued stories calling attention to Shoichi Nakagawa's behaviour at the news conference at the G7 gathering in Rome over the weekend.

In Japan, at least, the question of what was wrong with Nakagawa when he appeared in front of the media has completely overshadowed the issue of the financial crisis.

His speech sounded slurred at the media conference and at one point Nakagawa, his head down and eyes closed, mistook a question directed at the BOJ governor as one for him.

The embattled minister attributed his behaviour to having taken too much medicine, including cold medicine and said he had only sipped wine at lunch, ahead of the news conference.

"It is a fact that I didn't conduct myself clearly, and I feel I must put it straight," Nakagawa told reporters on his return to Tokyo. "I did not drink a glassful."

Nakagawa has put his fate in the hands of his boss, Prime Minister Taro Aso, who appointed him in September last year.

It is one more headache that Aso does not need.

A former prime minister, the still popular Junichiro Koizumi, rebuked Aso last week for policy flip-flops and a poll at the weekend showed voter support for the government has fallen to 9.7 percent as the recession deepens.

New figures show the economy contracting at its fastest rate since the first Middle East oil crisis in 1974.

Keep Nakagawa or lose him, it seems Aso cannot win either way.

"Losing someone in charge of the financial system and public finances at this juncture ... is potentially lethal for his (Aso's) own tenure," says Koichi Nakano, a Sophia University political science professor.

And if Nakagawa stays? "It will add to the impression that Aso is well past his expiration date."

Photo credit: Nakagawa at a news conference after the G7 finance ministers meeting in Rome February 14, 2009. REUTERS/Chris Helgren

George Alogoskoufis is a hardly a household name outside Greece and EU financial circles. But the newly sacked Greek finance minister could yet become a poster child for politicans struggling to fight off economic decline and banking industry collapse. His demise was in large part due to a public perception that he was helping out the banks but ignoring rising joblessness.

Greece, of course, is a special case at the moment, still recovering from riots over the police shooting of a teenager. But finance ministers, central bankers and other responsibles are probably not immune from Alogoskoufis Syndrome. Balancing the need to bail out the finance industry with rising economic misery among everyday people is not easy. Fat cats are not exactly in favour at the moment.

This could, indeed, come to a head later in the year. Investment cycles tend to recover before economic ones. So what happens when Wall Street, the City and the like start bringing in the money again just as unemployment lines start getting even longer?

America caught a cold and now China has one too. 

IMF chief Dominique Strauss-Kahn said on Monday that the Fund could cut its forecast for China’s economic growth in 2009 to around  5 percent. To think that only last year China was galloping at a double-digit clip. It’s staggering, and it’s worrying.

Worrying, for one thing, because  - as the Heritage Foundation’s Derek Scissors puts it - ”the American economic slump is running into the Chinese economic slump, creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world’s most important bilateral economic relationship”. 

He argues that the new U.S. administration, confronted with a record-breaking bilateral deficit and soaring unemployment, could impose prohibitive tariffs or erect other barriers to Chinese goods. The EU, Japan and others would then be permitted by WTO rules to raise barriers against a diversion of Chinese goods to protect their markets, and “some form of Chinese retaliation is certain”.

“If intemperate, such retaliation will prompt further action by the U.S. and perhaps other countries, threatening the global nature of the trading system,” Scissors concludes.

Michael Pettis, a professor of finance at Peking University, blogged on the same theme last month, warning that Smoot Hawley, the notorious U.S. tariff act that contributed to the Great Depression of the 1930s, could return in a different guise.

Pettis says that while everyone is watching to see if Washington re-enacts new versions of Smoot-Hawley, the real threat may come from current-account-surplus countries which seek to support their export sectors.  There are indeed signs that China is looking to export its way back to vigorous growth through subsidies, raising import tariffs and perhaps currency depreciation (see the grumbling from France’s Anne-Marie Idrac only yesterday on the yuan). 

The bitter lesson from the 1930s is that not all countries can export their way back to economic health at the same time. And if they try, there will be a fight.

As journalists, we spend a lot of time watching politicians and policies to guage their impact on financial markets and economies. Now, as recession takes an inexorable hold in the Asia-Pacific region, we’re watching for the impact on politicians themselves.

 So far there has been no repeat of the political upheaval triggered by Asia’s economic crisis a decade ago, which culminated in the ignominious resignation of President Suharto in Indonesia and the ouster of Thailand’s prime minister (see previous blog). There are no food riots as there were back then, and Asians are not crowding at  banks’ doors to rescue their savings.

The Economist magazine argues this week that Asia’s economic downturn will be milder than the one it endured a decade ago, when Asian governments begged households to be hand over their jewellery to be melted down to bolster official reserves.

That seems to be the consensus view. The president of the Asian Development Bank, for instance, argued in a speech this month that the region was well positioned to weather the global downturn and predicted that it should “avoid a full-fledged financial crisis”.

So can the region’s politicians breathe easily? Probably not.

In New Zealand earlier this month, Helen Clark’s nine-year-old Labour government was bounced from power by voters. Analysts reckon she was always heading for defeat at the hands of an electorate ready for change, but any hopes that she would make a last-minute comeback were dashed by the economy’s slide into recession.

In India politicians too face a tough year, with national elections due in early 2009 after a difficult 12 months, first of soaring inflation and now of global economic turmoil. Jobs are disappearing, factories are putting expansion plans on hold and even the country’s tourism boom is coming to an end.

For more on India, take a look at Reuters’ investment summit stories this week.

The Hindu-nationalist Bharatiya Janata Party lost power in 2004 after its “India Shining” message of economic liberalisation and growing corporate confidence failed to connect with the millions of voters for whom a first car, apartment or refrigerator is once again moving out of reach.  Will Sonia Gandhi’s Congress Party face a similar fate? There’s a test of the political waters in the central state of Madhya Pradesh this week.

Indonesia also goes to the polls next year. Will voters reward Susilo Bambang Yudhoyono, a respected reformer who has brought the economy back from the brink, by re-electing him as president? Or could the financial crisis, which has savaged the rupiah, bring his rival, Megawati Sukarnoputri, to power again?

Could the economic downturn even have a political impact on Singapore, which last week published figures confirming the city-state is in recession? The Financial Times’ take was that the downturn may prompt Prime Minister Lee Hsien Loong to call an early election “in case economic pain leads to a backlash against the People’s Action party that has ruled Singapore for 50 years”.

It even speculated that “the severity of the downturn could determine the continued durability of the Singapore model, seen as a pioneer of authoritarian capitalism, in which the public gives up some civil liberties in return for economic prosperity”.

That may be over-stating the case. 

But for sure Asia’s political landscape could look very different when the current economic downturn is over.

    The Indonesian rupiah has lost more than a fifth of its value against the dollar so far this year and on Friday hit its weakest point since August 1998. Authorities swooped in to take over an
insolvent Bank Century, the first such takeover since the Asian financial crisis a decade ago.

   Are things in Southeast Asia’s biggest economy really that dire to prompt comparisons with the chaotic events of a decade ago? Today’s financial crisis is draining liquidity from many banks across the world, including in Indonesia.  And as was the case a decade ago, domestic capital is swarming hot on the heels of foreign capital in fleeing Indonesia.

    It is the kind of vicious circle that characterised the”Asian Contagion” crisis of 1997/98. Currencies depreciate. Foreign investors liquidate their portfolios and swarm to the exits. Creditors call in loans, plunging institutions into insolvency. More people take their money and run, further undermining institutions and weakeninging the currency … And so it goes.

    Ten years ago, I was covering South Korea’s fraught journey into near national bankruptcy. (More echoes of the Asian Contagion crisis: The South Korean won hit lows not seen in a
decade on Friday and analysts forecast the economy will shrink next year for the first time since 1997). 

    My brother and sister-in-law were in Jakarta, where the financial crisis had morphed into a populist movement aimed at overturning the autocratic regime of the late president Suharto.
I had lived in Indonesia in the 1980s and I could hardly believe what was happening in Suharto’s Indonesia.  Food riots swept across Indonesia as the rupiah halved in value in the second half of 1997 — and then halved again in January alone. Panic-buying stripped supermarkets and other
stores of their wares.  ”An army of perfectly coiffed Indonesian matrons stormed the
supermarkets this week and bought out all the rice, flour, sugar and cooking oil,” my sister-in-law Cynthia Mackie wrote in her diary in mid-January 1998. “The foreigners smelled the panic and
got very excited at the idea of their dollars being four times as strong as in July.”

    Suharto was sworn-in for a seventh five-year term after his Golkar party won an incredulous 70 percent of the vote in yet another rigged election of his New Order period.  For years, Indonesians had accepted limits on their political freedoms in exchange for prosperity and growth. Now they had
neither. They turned their rage on ethnic Chinese, who though comprising just 5 percent of the population controlled well over half of the domestic economy.

    The killings of students in pro-democracy demonstrations in May 1998 spawned an orgy of rioting that convulsed Jakarta for two days. Chinatown was gutted. Around 1,200 people died, many of them trapped in burning buildings. Anarchy descended on the capital. Foreign embassies ordered a
mandatory evacuation of their nationals. Convoys of foreigners streamed past burning cars and buildings to the airport, leaving pets and belongings behind, including my brother and his wife.
They would not return for months.

    Indonesia is an altogether different place a decade later, at least politically. The world’s fourth-largest nation arguably has the most liberal democracy in Southeast Asia, a free-wheeling
press, and a legacy of reforms that has decentralised power.  Corruption is still a problem, and an elite class with old ties to the New Order — President Susilo Bambang Yudhoyono was the
head of the armed forces political faction at the time of Suharto’s resignation — dominates politics.     

    But Indonesia has improved its ranking in the corruption tables and people can vent
their frustrations in free and fair elections, due next year.  As John Milton famously said: “Anarchy is the sure consequence of tyranny”. Indonesia is heading into turbulent economic waters,
but don’t expect to see a reign of terror again in the streets.

Malcolm McLaren, the man who gave us The Sex Pistols, has found the real punks -- bankers. In an interview with Britain's The Observer, he says punk was not just about spiky hair and ripped t-shirts.

"It was all about destruction, and the creative potential within that. It turns out that the bankers may have been the biggest punks of all."

McLaren says we are now at a transformative moment.

"We're at the end of the culture of desires; we may be going back to a culture of necessity."

God Save The Queen