Japan and the IMF
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Statement by IMF First Deputy Managing Director, Anne Krueger, in Tokyo
The following statement was made on June 4, 2003 by Ms. Anne Krueger, First Deputy Managing Director of the IMF, at the conclusion of her visit to Tokyo on June 3-4 in conjunction with the 2003 Article IV mission to Japan:
"During the past two days I have had the opportunity to discuss Japan's economic situation with senior officials. I am pleased to note that significant progress has been made on several fronts. Non-performing loans have been reduced and corporate sector performance has improved. Actions to ease monetary policy have helped maintain financial stability and may have prevented deflation from worsening. Also, steps have been taken to cut public works spending and improve its efficiency.
"Nevertheless, the overall economic situation remains difficult. The outlook is for continued sluggish economic growth and for deflation to remain entrenched. At the same time, a major concern is the rapidly rising public debt, which in relation to GDP is now the highest by far among the G-7 countries.
"The combination of continued deflation and slow growth will make it difficult for banks to reduce further their nonperforming loans and for corporations to become more profitable and strengthen their balance sheets. The weak economy will also hamper efforts to reduce the fiscal deficit. We therefore believe that a bold and comprehensive policy package is needed to enable the economy to escape from its present deflationary trap. The strategy we recommend involves four interrelated elements:
"This strategy will not be an easy one to follow, as it requires politically difficult choices and may involve short-run economic costs. But in our view it offers the best chance of restoring economic vitality to Japan, and allowing the country again to become one of the engines of global growth and prosperity."
IMF EXTERNAL RELATIONS DEPARTMENT