A global economic recovery depends heavily on whether Japan succeeds in solving its banking and economic crisis, said a leading executive at Fitch IBCA, the London- and New York-based international rating agency.

"Japan is crucial," said Robin Monro-Davies, group chief executive officer. "It's the single most significant issue today."

The financial and economic crisis that began in Asia last year has since spread around the world, triggering a collapse of Russia's financial system and growing concerns that the economies of Latin America will be next to experience substantial slowdowns.

Japan has also been undergoing a severe economic contraction, and bad loans on the books of the country's banks are now estimated to total more than $1 trillion. Though the Japanese government has drafted a plan to bail out the banks, political squabbling has prevented it from being adopted.

Underscoring the continuing deterioration, Fitch this week downgraded Japan's long-term foreign currency rating from AAA to AA-plus.

The credit rating agency cited Japan's weak banking system and the government's inability to act as well as mounting government debt as reasons for the downgrading.

Mr. Monro-Davies emphasized that a recovery in Japan could help put a "floor" under the decline in economic activity.

"Let's say that if Japan does well the rest of Asia will do better or will do less badly," he said. But he expressed little hope that Japan would soon come to grips with its problems and predicted that any recovery in Asia is unlikely for at least two years.

As a result, Asian economies will likely deteriorate further before they get better, he said.

"Japan has two problems: a banking problem and a macroeconomic problem," Mr. Monro-Davies said.

Though solving the banking problem is mainly a matter of political will, "Japan is suffering from policy paralysis," he said.

Until the banking crisis is resolved, he added, Japan is unlikely to begin dealing with its broader macroeconomic problems.

The Fitch executive also dismissed hope that the spillover from the financial and economic crises in Asia and Russia could be kept out of Latin America or even Europe.

"Latin America is on the cusp," he said. "There is a greater political willingness to ensure stability in Latin America, but the overall effect has already been a slowdown in economic growth."

Europe is also likely to suffer a slowdown, making it harder to put the euro, the single European currency, into circulation next year, he said.

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