Term Paper on Relationship between Japan
and IMF
Since its membership in the International Monetary Fund (IMF) and the World Bank
(WB) in 1952, Japan has experienced many ups and downs for the last fifty years.
Japan received a great deal of benefits from those international organizations
during 1950s and 1960s as a result of which it succeeded to achieve
extraordinary reconstruction and development. Specifically, the World Bank
bestowed not only financial means but also know-how and software for economic
infrastructure such as dams, highways and "bullet trains." Japan benefited from
the fixed rate of exchange at the level of 360 yen per dollar, where the yen was
undervalued for a long time. This organization provided a base for the
development of Japan's exporting industries. Subsequently, yet, Japan ailed from
its own success experience and was unable to reform itself. In addition, Japan
was too late to react to the end of the Cold War and the course of globalization
in the late 1980s and the early 1990s. Erroneous contemplation of return to the
prosperous years forestalled reforms in Japan.
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Japan has important liabilities to continue the framework of the IMF
administration, and in the stance support its principled share. The IMF and the
World Bank have to face difficult challenges such as uncertainty and poverty in
the developing countries in recent years. Japan's economic situation is quite
significant not only from the domestic perspective but also from the
international perspective, and consequently must confer to the outside world its
will to reform and revitalize the economy.
It is vital for Japan to recover its competitiveness. Hence, it is imperative to
push such reforms such as the privatization of the postal savings system and the
public highway corporation notwithstanding disagreement from vested interests.
Rather, it would be irremediable to get back international competitiveness if as
much as one third of the financial sector remains under government control.
Apropos tax reform, a medium-term vision of the Japanese economy should be drawn
first. Besides, further deregulation should be made to encourage private sector
activities in recently incipient fields. In this paper I would be discussing the
long lived relationship of Japan with the mighty IMF, its impact on Japan’s
economy, Japans stance in the Asian crises and in the wake of globalization the
aftereffects on the Asian nations, and lastly the impact of reforms guided by
IMF on Japan’s economy and people.
Japan’s economic performance in light of its relationship with IMF
The economic performance of Japan over the past 50 years has been exceptional.
When Japan joined IMF, it was still regaining from the destruction of World War
II. In following years it grew and thrived, changing itself into industrial and
technological dynamite. At present Japan is one of the richest nations in the
world, and the next largest shareholder in both the IMF and the World Bank.
Japan, nevertheless has responded to the challenges of the future in an apt
manner. Naturally, these accomplishments have empowered Japan to play an
increasingly significant role in world economic affairs, and especially in the
IMF. Showing leadership, Japan has made various moves in shaping the IMF’s
policies, chiefly on relations with low-income countries, crisis management, and
actions to fortify the international financial architecture. Furthermore, Japan
is the biggest provider of wealth for lending by the IMF's Poverty Reduction and
Growth Facility, and for technical assistance and training through its
Administered Account with the Fund. This amount of wealth shows a wise
investment for Japan, to help make a more serene and prosperous world. Japan has
a lucid interest in open markets, free trade, and international financial
stableness, these objectives site at the center of the IMF's mandate.
Japan has pledged various times of its continued leadership role in the IMF's
response to the challenges of a new millennium. Essentially, there is necessity
to outline a policy concept for one world, that encourages widely shared growth,
respects environmental sustainability, worth the abundance and innovation of the
human experience, and aids to combat world indigence. Japan's personal
experience shows that adherence into global trading and financial system is
vital for sustained development. However, it is required to direct and form the
process of globalization, to guarantee that it is more comprehensive and to
patronize an improved balance of risks and benefits. This behooves apropos
local, national, and regional institutions, and powerful international
cooperation.
Japan has shown signs of retracting from recession, but the forecasts depicts
that the recovery would be slow, and would strongly depend on outside demand
and, chiefly, associated to economic developments in the United States. Swift US
economic development over the recent decade has helped the global economy
successfully, however it has likewise contributed to a assenting present account
deficit and anxiety about the probability of piercing and destabilizing behavior
in capital flows and exchange rates. A great deal of the answer lies in policies
to expand national savings in the United States. However it is also vital for
Japan to be more airy to structural change in the economy, so that it can do a
better job of opening a self-sustained growth. Fixing a growth performance that
corresponds to Japan's proved ability demands nonentity less than an integrated
policy approach grounded on definitive restructuring of the banking and
corporate sectors and macroeconomic policies intended to yield an end to
deflation.
Japan is a dominant force in the world economy, yet its effect is possibly even
more definitive within the East Asian region. Succeeding Japan's case, other
countries in East Asia have utilized adherence into the global economy
prosperously to conceive neoteric and increased opportunities. They have gained
from effective trade and investment linkages with the United States and Europe
and inside the region, in addition to direct investment and bank lending from
Japan. This has accomplished eloquent advancement in raising standards of living
and reducing poverty.
As a contribution to global governance, Japan has worked on an extensive concept
to establish "rules of the game" for the global economy via internationally
acclaimed standards and codes, such as those for proper monetary and fiscal
policy, economic statistics, and effectual supervision of financial sectors. In
the course of action, Japan has begun consolidating and concentrating IMF
conditionality, to better its productiveness and make space for authentic
national ownership of reform programs. As a needed complement to a more centered
IMF, Japan has reinforced our collaborations with other organizations,
particularly the World Bank.
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These structural reforms have helped Japan to make the international financial
system more elastic today than it was before the Asian crisis. However novel
experience has made Japan more flexible for pursuing effective and timely
economic reforms.
It is a known fact that globalization has an immense potential to help to raise
standards of living and reduce world poverty. Nevertheless it also conveys risks
and skepticism. Over the last 50 years Japan has shown the benefits of
integration into the global trading and financial system. Though, it is
unbecoming that Japan's exceptional reformation is from time to time lost
glimpse of because of its late economic difficulties. Nevertheless the major
changes from postwar destruction into one of the world's richest countries with
a position of global leadership remains a fact. In fact, Japan is a dominant
force in the world economy, and chiefly in the Asian region.
Many times Prime Minister Koizumi has pointedly reaffirmed his total confidence
that Japan needs to move forward with structural reforms to improve the
fundamentals for growth, and to persevere with this reform agenda over the long
term. This is needed for reformation of confidence, sustained economic growth
and job creation. It is also evident that the way of these structural reforms is
very difficult. But, nevertheless, there needs to be a comprehensive strategy
with absolute priority on decisive bank and corporate restructuring in the
context of a supportive macroeconomic policy.
In this connection, banks' non performing loans have to be written off instantly
and disproportionate corporate debt has to be worked out without hesitation, and
corporate operational restructuring needs to be quickened, in addition to
small-and medium-sized enterprises. However, in the short run, policy of such a
kind needs to be complemented by a strengthening of the social safety net. A
fundamental aim must be to nurture entrapreneurship and innovation, and to make
more influential use of the present large reserves of savings. This is the way
for Japan to fortify its own domestic sources of economic growth over the medium
term, which in turn would provide the essential strength to the stock market.
Hence, Japan remains committed to meeting its leadership obligation as a
significant part of the international community. There is no dispute to the fact
that the futuristic economies, including Japan, have a certain role to play in
guaranteeing powerful, stable and impartial growth in their own economies and
world-wide. In fact, in many events the IMF has been supported by Japan to meet
its challenges, and it also looks forward to working closely with Japan as we
face the challenges of the 21st century together.
Some critics say that the Japanese economy cannot be described as in crisis, at
least not a financial meltdown. Some critics, however, sees a true 1930s-style
Depression as imminent. Nonetheless, if not in crisis, then the Japanese economy
is certainly in deep waters. Following four decades of prospering post-war
growth in which Japan emanated as a giant in the world economy, its leadership
place has been progressively eroding. In the previous decade the per capita
income in Japan has fallen by roughly 10 percent as compared to Europe, and by
more comparative to the United States. Hence, a determined effort to tackle
Japan's underlying structural problems is lacking. In fact, it is moderate to
hypothesize a poor ten years progressing, given the disparity that built up in
the post-bubble decade that accumulated non performing bank loans, sharp
increase in government debt, increasing gait of corporate bankruptcies,
descending labor force and aging population, and the ongoing deflation.
The reason Japan has survived through this rough track is the counterbalancing
forces most notably the technology revolution. Majority of the evidence pursues
to uphold the beliefs that drift in productivity growth are rising all over of
the world. Looking at the past experiences of the great inventions like
electricity, the steam engine, railroads, etc. subjects of the global economy
can look ahead to at least another decade or two of improved potential growth.
Unluckily, to accomplish this augmented potential, an economy must be adequately
robust and flexible. Subsequent to ten years of confusion, there are still too
much closed doors in the Japanese economy today, notwithstanding the finite
pruning that has by now taken place. In addition to the macroeconomic
environment, with inveterate deflation and an uncertain long-term fiscal
position, make all the things worse. Japan needs to act now. The long-term risks
to protracted inaction, chiefly to Japan's place as one of the world's global
economic giants, are debatably larger. Not only its the Japan’s economy in
crises but also the whole of Asian economy is in jeopardy.
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Japan immediately requires the re-establishment of confidence of consumers,
businesses and investors. In order to make it possible in a sustainable fashion,
the macroeconomic and financial environment must again become supportive of
growth. This needs contented encouragement for investment and risk taking, and
transparency in corporate and banking operations. A core component of any
flourishing strategy to revive the economy involves ending deflation. Continuous
deflation acts as a discouragement to private spending, particularly in an
environment of policy doubt and rising unemployment. It harms investment by
enlarging real debt burdens of corporations and taking away the profitability.
Simultaneously, these factors combine deflation's psychological impact on
expectations and worsen suspicion about the country's prospects. Over the recent
century, no dominant economy has owned sustained growth under persistent
deflation.
That deflation continues, notwithstanding the Bank of Japan's novel efforts to
expand base money, is affirmation to the obstinacy of the problem. Nonetheless,
a core reason why quantitative relief has not had an impact thus far is that the
inflation process is driven as much by contemplation of future monetary policy
as by current monetary circumstances. Inasmuch as the public lacks assurance
that the Bank of Japan (BOJ) will do whatever is essential to reinstate
inflation, it will be strenuous to converse strongly inveterate deflationary
expectations. In these circumstances, BOJ requires a clear-cut communication
strategy to restore confidence. Such a strategy would elucidate that BOJ plans
to reinstate positive inflation within a adequately short time frame and that
the BOJ has extensive volume to reinstate assured inflation if it chooses to do
so.
One of the alternatives to the problem is to raise inflation through more
belligerent quantitative relief, provided the public understands that the BOJ
will continue as necessary to attain its objective. Evidently, if the central
bank were to print enough money to buy back all government debt, there would be
massive inflation, with or without a weak banking sector. For that reason
certainly some lesser level of quantitative easing should do the work. But it
would be naïve to percept that the BOJ can just turn and smoothly increase
inflation from say, minus one percent to plus two percent. Conferred Japan's
liquidity trap, and the necessity to depend on growth in base money to restore
inflation, there is a tangible risk that the inflation rate will bypass any
target, at least for a brief time. The BOJ should not put its integrity on the
line by assuring to achieve a narrow inflation target that it cannot practically
give in the short run. However, This affect should not be inflated. It should be
possible to anchor medium term and long-term inflation expectations given the
BOJ's strong past anti-inflation performance, and a clear communication strategy
going forward.
Fixing positive inflation is essential for recovery and it will produce some
positive development benefit. However the developmental benefits will be
somewhat small else the BOJ's actions are chaperoned by broad economic
restructuring, particularly of the banking and corporate sectors. At present,
the large amounts of bank’s non-performing loans has created a vicious circle
where the banks are unwilling to lend. This damages the financial
intermediation, credit and money growth, and at the end creates new
non-performing loans even as old ones are being written off. Splashing over
loans to bankrupt corporations may keep the fiction of ordinariness, however it
is caustic to the whole system, and causes tremendous uncertainties for markets.
Without a doubt, with a weak economy and deflation, financial intermediation is
also shrinking because even some healthy corporations are de-leveraging to
fortify their balance sheets.
Therefore, structural reforms are badly required to boost confidence and
strengthen growth foundations also in the corporate sector to strengthen viable
enterprises and force the exit of insolvent firms, especially in sectors such as
retail and construction. Giving banks stronger time-bound incentives to agree on
realistic restructuring plans with viable firms and to carry out the rapid and
complete disposal of the assets of nonviable ones must accelerate corporate
restructuring. Net debt aside from social security is projected to rise to over
120% of GDP by the end of fiscal year 2002/03, with gross debt rising to over
140% of GDP.
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Japan and the Asian turmoil
Furthermore the deregulation issue in Japan can be seen as part of a larger
problem, namely, the conflict between bailout and reform, both within Japan
itself and in the context of Japan's relations with mainland Asia. As the
influence of the bailout in East and Southeast Asia, the IMF misunderstands the
evidence for the ailment. Both in Japan and in mainland Asia, the purported
financial crisis is barely the symptom. The affliction is the Japanese model of
capitalism that on above of everything requires fundamental reform. Inside
Japan, the old-fashioned insider model of capitalism produces collusion,
conspiracy and corruption. It rigs markets and misappropriates resources. An
ejection would just reinforce that system and reinstate the fortunes and
precedences of those who have been its beneficiaries. For the same reasons in
mainland Asia, reform is similarly essential for the nations that adopted
Japan's model of capitalism in the hope of copying its extraordinary success
during 1955 to 1970. Also, in those nations, if an ejection did put down the
symptoms of financial crisis, it would merely paper over the disease and
contribute to the survival of the system in its present corrupt condition.
Japanese notice that their money is always welcome in burden sharing, but
Japan's voice is not always welcome in geo-political decision making or in power
sharing. Especially, from a Japanese viewpoint, it is insincere of the West to
present a demand for Japanese money in the guise of offering Japan an
opportunity to assume "leadership" in East and Southeast Asia. Japan is not
under any circumstances ardent to exercise leadership in pulling Western
problematic countries of the fire. Thereby, neglecting the Asian crisis as it
would make it more difficult for the U.S. to be respected as a superpower and
more difficult for the IMF to maintain its credibility as the lender of last
resort. With respect to reform as remarkable from ejection, it might be debated
that the IMF does attach conditions to the allocation of its loans. These
circumstances, nevertheless, do not indispensably force reform. Basically they
are conditions that are intended to guarantee that the IMF will get its money
back. They concern mainly to macro-economic affairs that the IMF has the power,
the tools and the confidence to monitor, such as monetary and fiscal policy and
exchange rates.
The IMF stance
In the previous years and still evident is the financial turmoil Asia is facing.
The climax has occurred against the framework of a somewhat vigorous world
economy. Consequently, the present global economic slowdown is still anticipated
to be less caustic than those following the first oil price shock or that of the
early 1980s. This still emerges to be the case even though the critique of the
IMF’s world economic forecasts currently underway seems probably to lead to
significant downhill revisions to projected global growth. The downhill changes
seem likely to be focused in Asia, including Japan, and some emerging market
economies in other regions. Though, whether the global outlook remains almost
approbatory relies in large part on how Japan and other countries of Asia
respond to their current difficulties.
The hostile impact on real activity of the continued financial strains are
increasingly being felt all over Asia as the sharp falls in currencies and stock
markets reduce private wealth and confidence. At this time it seems unavoidable
that output will contract at a double-digit rate this year in Indonesia, with
tangible declines also in expectation for Korea, Thailand, and, to a lesser
extent, Malaysia, and Hong Kong. Growth is also slowing in China. In Japan
itself, the weak spending and production data and rising unemployment shows that
the economy is in recession.
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The economic threats that Japan faces today are conceivably the most strenuous
since the immediate post-war period. With a little over 2 percent of the world’s
population, Japan accounts for about 14 percent of world GDP and for over half
of Asia’s GDP. Further, Japan is one of the most significant markets for Asia’s
exports accounting for about 17 percent of exports from the Asia-5 countries and
China. Exports to Japan represent a remarkable 12 percent of Malaysia’s GDP and
4–7 percent of that of Indonesia, Thailand, and South Korea. Also, Japanese
banks have been the largest lenders to the region, accounting for about one
third, around $97 billion, of total BIS exposure to the Asia-5 countries at the
start of the crisis in mid-1997, and a similar proportion to China. Japanese
banks are especially important in Thailand, accounting for over half of all
international bank lending. In addition, Japan is the largest single source of
foreign direct investment inflows into East Asia. As far as about $6 billion a
year on average during the 1990s, or about one fifth of the total.
Introspective this immediate concatenation, inundation effects from the economic
downturn in Japan affected recovery prospects more broadly in Asia. IMF staff
calculation recommends that the economic slump in Japanese domestic demand and
the depreciation of the yen against the dollar could lower GDP in the Asia-5
countries by almost 1 percent. Conversely, the Asia crisis is assessed to lower
Japan’s GDP by 1–1¼ percent. Capital flows within the region have also been
inauspiciously influenced by the financial strains in both Japan and the
recipient countries. Japanese bank loans to the Asia-5 countries fell by 10% in
the second half of 1997. This was a much sharper decline than from other BIS-area
banks, where the decline was about 3 percent. This shws that if Japanese banks
are not quickly restored to financial health, these trends are likely to
continue, reducing their ability to finance new projects and regional trade.
“In Japan’s present circumstances, there is little alternative to the use of
fiscal policy to provide such a stimulus. So the government is correct to
implement as quickly as possible the recently approved fiscal stimulus package,
including about ¥12 trillion of "real water" measures that will have a direct
impact on aggregate demand. Indeed, in view of the continuing signs of weakness
of aggregate demand, there now seems little scope for a withdrawal of fiscal
stimulus next year. So longer-term fiscal consolidation, while still necessary,
will have to be temporarily postponed. One useful way of achieving the necessary
fiscal stimulus would be through up-front cuts in tax-rates, rather than a
further extension of temporary tax rebates. High marginal tax rates on both
individuals and corporations could be lowered, while announcing a multi-year
commitment to gradual base broadening” (Horiguchi, 2001).
“But fiscal action will only provide temporary relief unless the underlying
banking sector problems are addressed decisively to restore public confidence
and to ensure that banks can play an effective role in financial intermediation.
An aggressive, far-reaching strategy is needed. Fortunately, there now appears
to be a clear recognition by the government of the need for a decisive break
with the past. Earlier this month, the second report on the Plan for Financial
Restructuring announced a number of welcome initiatives that represent further
important steps toward a comprehensive approach. Let me briefly summarize what,
in the IMF’s view, are the necessary ingredients of the overall strategy, a
number of which are now underway”. (Roggof, 2002)
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So, in order to get rid of the turmoil, Japan has subsequently, formulated
policies. In the context, the self-assessment framework is the right approach
for recognizing the full extent of bad loans, but will need to be rigorously
enforced by supervisors. Further, the recently approved bridge bank facility
provides a potentially valuable means for resolving insolvent institutions in an
orderly manner that preserves values and avoids disrupting credit relations.
However, to be effective the approach will require clear procedures to ensure
that bad assets are identified, assets are subject to proper valuation, and that
new loans are only provided on prudent commercial criteria. Private sector
buyers for the bridge banks will also need to be identified quickly. Also, the
proposed bridge bank scheme is a mechanism for dealing with failed institutions
only. Nonetheless, it is just as important to advance the restructuring of those
major banks that are undercapitalized but that may be solvent. As part of this
effort, injections of public funds will be needed to avoid a contraction of
credit that would further weaken the economy. The use of public funds should be
linked to powerful restructuring plans. A mechanism needs to be put in place to
guarantee that banks are coming forward and tapping the restructuring funds.
Furthermore, aggressive efforts are needed to dispose of bad loans in all banks
and to improve the institutional mechanisms for debt workouts. Lastly, there
should be increased independence, authority and staff resources.
Though, the reforms are tough, but for the Japan to follow its leadership, it
needs to take strong action to ensure that Japan gets back on the path of high
growth it enjoyed in the past. Thus, early action will help improve the health
of not only the Japanese economy, but that of Asia and the world. Notably is the
fact that on a purchasing power parity basis Japan 's share is about 8 percent
of world GDP and over one fifth of Asia 's GDP!
Asian crises and Globalization
The Asian crises had ultimately compelled a persuading a number of East Asian
economies such as Indonesia, Thailand, the Philippines, South Korea and Japan,
to accelerate the opening of their economies, including sectors, which had
previously been closed to foreign investment. For instance, the car industry in
Japan has been transformed. The French and the Americans now in part own icons
such as Nissan and Mazda respectively. In South Korea, Thailand, the
Philippines, Indonesia and Singapore, the banking industry has been liberalized
and is open to foreign investment and acquisition. Consequently, in the crisis
years of 1997 and 1998, Thailand and South Korea received more FDI than in the
pre-crisis period. The foremost results of the crisis are hence the accelerated
opening of the economies of East Asia.
The crisis has had the beneficial effect of alerting east Asians to the
importance of good corporate governance. The rest of the region has taken up the
Indonesian students’ campaign against the three evils of corruption, collusion
and nepotism or KKN . Asians now realize that in order to run a modern and
competitive economy, transparency and accountability must replace KKN. Asian
companies and banks are now more willing than before to disclose relevant
information to their shareholders and the market.
Eventually, these crises has had the beneficial effect of bringing home to east
Asians the desirability of uniting the region and building new institutions to
serve the region. During the crisis, the region appeared helpless when, in fact,
it is very rich. Together, Japan, China, Taiwan, Hong Kong and Singapore have
US$600 billion worth of foreign exchange reserves, 38% of the world's total.
Since the region is not united and as these nations lack common institutions,
they were unable to help each other effectively. This realization has animated a
number of new ideas and activities.
Japan has steered the founding of an Asian monetary fund. When Japan first
floated the idea, the United States and the IMF shot it down. Japan has,
nonetheless, revived the idea, but it needs to strengthen its proposal. Some
questions needed answers at that time, like who would provide the sum of $100
billion to the fund, how will it be managed, would it be linked to the IMF, and
would the loans from the Asian fund have the same or different conditionalities
as those from the IMF? Although the offer raises many questions, it is also one
that deserves to be cautiously considered.
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In the wake of the events, Japan has also proposed the internationalization of
the Japanese yen, making it, along with the US dollar and the Euro, the third
international currency of the world. Some Japanese have hinted at that if each
of the countries of the region should decide to manage its currency against a
trade-weighted basket of currencies, the region should study the feasibility of
adopting a regional basket. Joseph Yam, the head of the Hong Kong Monetary
Authority, has proposed the idea of an Asian monetary union. Some of those
ideas, such as the regional basket of trade-weighted currencies, may not be
practicable. But, other ideas, such as an Asian monetary union, may take as much
as two generations to accomplish. However, what is interesting is that for the
first time, some of the best minds of the region are thinking about how to unite
East Asia and how to build new regional institutions to serve the region's
needs. In March 1999, China inaugurated the first meeting of the finance
ministers and central bank deputies of ASEAN and China, Japan and South Korea in
Hanoi. In April 1999, the finance ministers of ASEAN plus three met in Manila.
Japan has pointed at that the senior officials of that group should meet to
arrange for the next summit and to follow up on judgments taken at each summit.
South Korea has pointed at the creation of an East Asia Vision Group to express
concisely a framework for cooperation. Thus, this crisis has brought along with
it for the first time the impetus of the creation of an East Asian community.
The currency and economic crisis has brought much suffering and ruin to East
Asia. Nonetheless, every dark cloud has a silver lining. The exigency has forced
some of the all but closed economies of the region to open up. It has pushed
East Asia away from corruption, collusion and dishonesty towards good corporate
governance. It has given new drive to the development of an East Asian
community. The chance is that the recovery is taking place so quickly that the
political will to push through with agonizing reform and restructuring might be
beaten by the power of the vested interests. Subsequently, the International
Monetary Fund has raised concerns that Japan could be facing a cycle of slowing
economic activity, rising bankruptcies and a deteriorating banking system. This
dreary assessment, contained in the IMF’s annual report on the Japanese economy,
was attended by a warning that if such a scenario did occur, it would provoke
the global economic slowdown.
The reforms
Consequently, the Japanese government has unveiled a package of budget measures
aimed at cutting spending by $7.3 billion or 1.8 percent and targeting areas
such as social security, public works, defense and education. The most important
move is the proposed 10 percent cut in public works projects in 2002, which
would eventually have a deep impact on the construction and agricultural
sectors. These budget cuts shows the first reduction in government expenditures
for four years and the largest since World War II. While booming international
warnings about too rapid a program of cuts, lest this speed up a deep recession,
the IMF report swung it’s uphold behind the program of restructuring proposed by
the Koizumi government.
It depicts the reform blueprint of the Council for Economic and Fiscal Policy,
which give emphasis to the importance of addressing problems in the financial
sector, fiscal reforms and the introduction of measures to promote competition
and make better the market forces, as “an excellent basis for action.”
The economic assessment annual report on Japan by IMF said that, “While
Directors recognized that restructuring could adversely affect output and
employment in the short run,” the report continued, “they stressed that Japan
has little choice but to embark on the long-delayed restructuring needed to
achieve sustained medium-term growth.” However, even before the release of the
IMF’s evaluation of the Japanese economy, two leading credit rating agencies,
Standard and Poors and Fitch, downgraded their ratings of all major Japanese
banks by one level because of concerns over their degenerating financial status.
Commenting on the bad debt sector, Standard & Poors said that the bad debt
problem in the Japanese banking sector was escalating with the critical factor
being the unexpectedly high rate at which loans were moving from the “healthy to
bad” category. They hoisted concerns that government endeavors to solve the
problems were only focusing on those loans already in the bad category. This
downgrade rating had an adverse impact on the Nikkei index that fell to over
11,477.56 recently and showed its lowest level since December 1984. Further, to
the situation, the Japanese government had also downgraded its economic outlook,
noting that the economy had further weakened since July mainly due to declining
capital expenditure, declining exports, decreasing domestic demand and lower
industrial output.
Haruhito Arai, an economist with Koizumi’s Cabinet Office commented: “The
downgrade is due to the continuing deterioration of Japan’s economy. In addition
this deterioration is getting stronger. The outlook in the domestic economy has
been poor for some time. Now it is being compounded by the global slowdown,
which is hitting export markets. Japan’s current account surplus in July
declined 25.2 percent from a year earlier. Total exports were down 1.2 percent,
whilst imports rose by 11.9 percent. The decrease in exports have come about
because of shrinking global demand for automobiles, ships and electronic parts,
in particular semiconductors”.
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Two fresh press reports point to the social impression that the economic slump
is already having and the consequences of the government’s restructuring
program. An article in the Asahi Shimbun cautioned that there were growing fears
that spending cuts could have a “devastating effect on the employment outlook in
the construction industry.” “As the construction industry has also played a
significant role in absorbing workers who have lost their jobs amid the ongoing
economic downturn, cutting public works spending by the 10 percent recommended
in the Council on Economic and Fiscal Policy’s budget guidelines could lead to a
dramatic increase in unemployment,” it said. According to a report prepared by
the Research Institute of Construction and Economy 0.5 million construction jobs
will be lost for a variety of reasons over three years from 2000. The planned
cuts to public works spending will eventually increase that number dramatically.
A report in the Japanese Times on suicide figures in 2000 disclosed an
increasing number of people committing suicide because of economic pressures
like as debt and unemployment. In spite of the fact that the number of suicides
in Japan in 2000 actually fell 3.3 percent to 31,957, the level has been over
30,000 for the third straight year. The report also noted that the number of
suicides by people who lost their jobs increased by 139 from the previous year
to 1,335, while the number of self employed workers taking their own lives rose
86 to 4,366. “Experts warn that the number of suicides in this category could
increase further as the nation undergoes the tough economic reforms advocated by
Prime Minister Junichiro Koizumi. The government admits these reforms will lead
to more unemployment in the near term,” the Times said.
Conclusion
If such are the results of the reforms, the Japan has a very coarse road ahead.
The point to note is the fact that these reforms, though initiated by the
premier, but are tremendously backed (pressurized) by the Fund, thereby
worsening the situation. Had the reforms not be so quick, it may not have been
such chaos. But IMF prevails.
References
Revitalizing Japan: Risks and Opportunities, By Kenneth Rogoff, 2002. This
resource gives the account of risks contained in the reforms ordained in Japan
Japan against the IMF, Business Time On Line – Singapore, Monday 31 May 1999.
This paper gives account of the stance of Japan during the Asian crisis
Change Nobody Understands, By Robert J. Samuelson, The Washington Post,
Wednesday, October 14, 1998. Although, this paper did not serve the purpose, but
gave an understanding of what is going on in Japan
Crisis Prevention: Time for Japan to Act, By Yusuke Horiguchi, Asian Wall Street
Journal, 2001. Gives detailed account for Japan reforms
IMF fears Japan’s economic outlook is worsening, By Joe Lopez, 25 August 2001.
Presents the findings of the annual report on Japan’s economic outlook
Beyond the Clouds, By Koh, WorldLink, October 1999. The effects of structural
reforms in Japan
The Outlook for Japan and its Global Implications, Address by Shigemitsu
Sugisaki, July 14, 1998. The impact of globalization is explained in this
article
Restoring Confidence to the Global Economy, By Horst Köhler, November 6, 2002.
Mentions IMF and Japan efforts to enhance confidence
Opening Remarks for a Press Conference on Japan Symposium to Commemorate the
50th Anniversary of Japan’s Membership in the International Monetary Fund and
the World Bank By Horst Köhler, Managing Director International Monetary Fund
Imperial Hotel, Tokyo, September 10, 2002
Japan and the IMF 50 Years of Economic Progress and International Leadership
Remarks by Horst Köhler, Managing Director International Monetary Fund Given at
the Symposium to Commemorate The 50th Anniversary of Japan's Membership in The
International Monetary Fund and the World Bank Tokyo, September 10, 200
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