A leading economist thinks Japan should apply the lessons it taught the United States in the 1980s and open up its banking sector to foreign competition. Washington-based Institute for International Economics senior fellow Edward Graham was responding to a call from former Japanese prime minister Ryutaro Hashimoto yesterday for 'urgent counter-measures' to deal with the global recession. Mr Hashimoto told the final session of the Pacific Economic Co-operation Council meeting that trade and investment and fiscal management and finance should be 'considered coherently and policies should be formulated accordingly', because every industrial economy was slowing at the same time. Mr Graham replied that the best thing Japan could do for the world economy was to deal with its non-performing loans. '[Historically] the US would be the locomotive to bring the world out of recession, and when the US was facing difficulty the two locomotives were historically Germany and Japan,' Mr Graham said. 'The systemic difficulties in the world now are closely linked to domestic difficulties in Japan . . . the banking non-performing loan problem has festered for years but still exists.' Japan should recall its own advice to US industry in the 1980s when it argued the best thing for the world economy would for the US to open up to foreign investment. Japanese investment, particularly in the car industry, forced domestic firms to change. 'The lesson that we learned from Japan should be transported back to Japan,' he said. Mr Hashimoto, responding to calls for renewed Japanese leadership of the region, said: 'As far as we are concerned we have never thought of ourselves as a leader in Asia . . . we are not like the US, we are not imposing our own thinking on other countries.' However, the financial community in Japan was poised to write off three times more bad loans than expected. 'We are going to experience this pain, we are going to take on the challenge and we are going to come back as a major player in the region.' In his closing remarks, outgoing council chairman William Fung Kwok-lun said the meeting was dominated by a desire to 'look at globalisation not just in economic terms, but in cultural and social terms'. He called for a faster multilateral trading system because frustration with its slow pace was feeding into the growing trend of bilateral trade arrangements.