Annual Meetings 2003
2003 Annual Meetings: News Releases, Speeches, Committee Papers, Documents and Background Information
Statements Given on the Occasion of the IMFC Meeting
September 21, 2003
Documents Related to the September 21, 2003 IMFC Meeting
Japan and the IMF
Statement by the Honorable Toshihiko Fukui
Governor of the Bank of Japan and Alternate Governor of the IMF for Japan
International Monetary and Financial Committee
Dubai, September 21, 2003
I. The Global Economy and Financial Markets
1. The World Economy
I welcome the positive signs of recovery that are emerging in the world economy, and the resulting improvement in global equity markets. While due attention should continue to be paid to downside risks, such as a fall in the prices of goods and assets in some regions, I expect the world economy to continue to gradually recover in the second half of 2003, supported by policy efforts in many countries.
The Asian economy is expected to continue its strong growth thanks to the diminishing adverse impact of SARS as well as receding uncertainties surrounding the world economy. In order for Asian countries to maintain sustainable growth over the medium and long term, it is important for them to develop regional bond markets, with a view to better utilizing the region's high level of savings for long-term investments that is necessary for economic development. In this context, the Finance Ministers of ASEAN countries, China, Korea, and Japan (ASEAN + 3) agreed in August 2003 to intensify their efforts to develop regional bond markets.
With respect to emerging market economies, I am pleased to note the increasing market confidence as a result of appropriate policy management, particularly in Brazil. However, it is essential for these countries to press ahead with structural reform, including fiscal consolidation, in order to achieve sustainable economic development.
I welcome the IMF's approval yesterday of a new arrangement with Argentina in the context of its medium-term economic program. However, Argentina still faces many structural problems, which call for far-reaching reforms under the new IMF-supported program. It is also necessary for the Argentine authorities to proceed promptly with good-faith negotiations with a large number of external creditors under the principle of equitable treatment of all creditors.
2. The Japanese Economy
The Japanese economy is showing signs of recovery: stock prices are keeping a rising trend and there has been an improvement in corporate profits. According to recently released data, Japan's real GDP in the second quarter of 2003 grew by 3.9 percent in annualized terms, supported primarily by well-sustained private consumption and business investment. This was the sixth consecutive quarter of positive growth. In order to achieve sustainable growth, the government will continue to pursue structural reform in an integrated manner in such areas as regulation, the financial sector, taxation, and government expenditure.
With regard to fiscal policy, the government intends to maintain in its FY2004 Budget a restrained fiscal stance and to pursue greater prioritization and efficiency in budget allocation, taking into account Japan's difficult fiscal position. As for medium-term fiscal management, the government's goal is to achieve a primary surplus by the early 2010s through the realization of private demand-led sustainable growth and continued efforts to improve the fiscal balance. The government will also address comprehensive tax reform from a medium-term perspective, with the aim of re-invigorating society as well as the economy, and of regaining the confidence of the people.
As for the financial sector, under the "Program for Financial Revival" announced in October 2002, the government set a target of halving by end-March 2005 the major banks' nonperforming loan (NPL) ratio as of end-March 2002. Financial statements of major banks as of end-March 2003 show that progress in lowering ratio is well on track. The government has also taken rigorous measures to improve the quality of financial institutions' capital, including the bold and prompt injection of public funds into an institution whose capital adequacy ratio had fallen below the minimum regulatory requirement in order to pre-empt any financial crises. The Industrial Revitalization Corporation of Japan (IRCJ), which was established in April 2003 for the purpose of revitalizing Japan's corporate sector, is set to purchase financial institutions' loans to potentially viable firms. Recently, the IRCJ selected a few companies as the first batch of candidates to receive assistance.
The Bank of Japan (BoJ) has been providing ample liquidity to the markets under the policy framework of quantitative easing in order to help stabilize financial markets and to put an end to deflation expeditiously. Furthermore, the BoJ in July 2003 introduced a scheme whereby asset-backed securities would be purchased as part of an effort to strengthen the transmission mechanism of monetary easing. The BoJ is firmly committed to maintaining its current policy stance until the consumer price index stably registers zero percent or above. The government, together with the BoJ, will make continued efforts to maintain the stability of the financial and capital markets as well as to overcome deflation.
II. Strengthening IMF Surveillance and Promoting International Financial Stability
Despite the IMF's efforts in the area of crisis prevention, financial crises have occurred in a number of countries in recent years, highlighting the need to further strengthen the measures for crisis prevention and resolution.
1. Crisis Prevention
In the area of crisis prevention, an important issue to be addressed is the strengthening of the IMF's surveillance together with the implementation of sound policies by each country to reduce external vulnerability. I welcome the progress being made by the IMF on various fronts, including the refinements of the framework for debt sustainability analysis and the deepening of vulnerability assessments. I hope further steps will be taken toward strengthening surveillance in the context of next year's biennial review of the IMF's surveillance. The Financial Sector Assessment Program (FSAP) is well under way, with many member countries having already completed the assessments. I hope that many more countries will participate in this program with a view to preventing future crises.
The Contingent Credit Line (CCL), which was set up as a facility for crisis prevention, is due to expire at the end of November 2003. However, the need for an effective framework to promote sound policies and to prevent contagion remains unchanged. I hope that the IMF's Board of Directors will discuss and come up with effective measures for crisis prevention before the CCL expires.
2. Crisis Resolution
For crisis resolution, it is essential to promptly restore the debt sustainability of a country in crisis through an appropriate combination of policy adjustment, official lending from the IMF and other international financial institutions, and private sector involvement (PSI), including debt restructuring as necessary.
With regard to PSI, I welcome the introduction of collective action clauses (CACs) by a number of emerging market economies, including Brazil, South Africa, and Korea, following Mexico's lead. I also welcome the Uruguayan government's successful debt exchange using CACs in the Japanese market. I hope that other countries will follow suit in introducing effective CACs in their sovereign bond issues under foreign jurisdiction.
With regard to a Code of Conduct for crisis resolution, it is important to secure widespread agreement among various related parties, including debtor countries and private sector creditors, and to secure voluntary compliance, since the Code will be a set of general principles with no legally binding effect. In order to ensure the effectiveness of the Code, I hope that interested parties will make further progress in the discussion of its various elements, including the role of the IMF.
I also hope that work will continue on issues of general relevance to the orderly resolution of financial crises, such as aggregation of debt, which were raised in the discussion of the statutory approach to crisis resolution.
3. IMF Quotas and Governance
On the IMF's quota, it is essential that the IMF maintain a sufficient level of financial resources for effective crisis resolution. Changes in the world economy and financial markets can be abrupt and hard to predict. The IMF should therefore continue to examine quota issues and be prepared to act promptly whenever the need for a general quota increase arises. In the review of quotas, we should bear in mind that the distribution of quotas should reflect the current realities of the world economy as well as the relative position of member countries' economies.
III. Accelerating Poverty Reduction and Strengthening Sustainable Economic Growth in Low-Income Countries
I believe that the IMF should play a significant role in economic development and poverty reduction in low-income countries, both of which are important objectives of the international community. In this context, the IMF needs to play a leading role in helping its members formulate sound macroeconomic policies and in analyzing the sources of their economic vulnerabilities, areas where the IMF has expertise. At the same time, it is also important for the IMF to contribute to the growth of low-income countries through efficient and effective collaboration with the World Bank and other international financial institutions that have expertise in such areas as fostering private sector development and other structural issues, which are also essential for the growth of low-income countries.
IV. Combating Money Laundering and the Financing of Terrorism
The threat of terrorism remains serious. It is therefore important for the international community to strengthen measures to combat the financing of terrorism. From this standpoint, I welcome the revision of the 40 recommendations of the Financial Action Task Force (FATF). The revised recommendations have set a new international standard in the fight against money laundering and terrorist financing. I also welcome the substantial progress in the assessments of member countries' compliance with the AML/CFT (anti-money laundering and combating the financing of terrorism) standard in the context of a 12-month pilot program by the IMF and the World Bank.
Based on the results of these assessments, technical assistance should be provided to help, countries implement the AML/CFT measures. Japan will continue to contribute to such assistance based on the needs of recipient countries.