Statement by the Hon.SadakazuTanigaki,
Governor for Japan,State Secretary for Finance
at the Annual Meeting of the Inter-American Development Bank and the 14th AnnualMeeting of the Inter-American Investment Corporation
on March 15,1999,in Paris,France
1. Introduction
Mr.Chairman,distinguished Governors,ladiesand gentlemen:
It is a great pleasure for me to address the 40th Annual Meetingof the Inter-American Development Bank and the 14th Annual Meeting of the Inter-AmericanInvestment Corporation.On behalf of the Government of Japan,I would like to express ourgratitude to our hosts,the Government of France and the people of Paris,for their generoushospitality.
I would also like to take this opportunity tocongratulate President Iglesias for his outstanding leadership,and the Executive Directorsand staff of the Bank and the Corporation,for the enormous efforts they have been makingtoward Latin American and Caribbean economic development.
Before going any further,please allow me toreflect for a moment on the souls of those who died in the series of unexpected naturaldisasters caused by El Nino,Hurricane Mitch,and the earthquake in Colombia.My deepestcompassion goes to all those who suffered.
2. Response to the crisis in Brazil
Mr.Chairman:
For two years beginning in 1996,the Latin American and Caribbeaneconomies were on the steady track of economic growth.Last year,however,momentum forgrowth,I believed,has waned considerably due to a number of reasons-sluggish commodityprices,natural disasters,and the economic crisis in Brazil.
Should the crisis in Brazil continue and become more serious,theimpact on the regional economy will be even greater.Stabilizing the Brazilian economy isthus of paramount importance to the recovery of growth in the Latin American and Caribbeaneconomies.
The crises in Asia are characterized by enormous foreign capitalinflows through the weak financial sector,and excessive private investments.The crisis inBrazil,on the other hand,can be attributed to the increase in fiscal deficits.
Despite such differences,however,there is something in common.Inboth cases,a rigid foreign exchange regime,which has allowed inflows of a large amount offoreign capital,has invited over-valuation of the local currency.There is also a morefundamental issue: in the wake of globalization of economies,emerging economies areexposed to abrupt and large-scale capital movements.
Therefore,I believe that the lessons wehave learnt from our response to the Asian crises might also hold in the crisis in Brazil.
I would like to draw your attention,in particular,to the fact thatin the Asian crisis countries,tightening of fiscal and monetary policies,with currencyprotection in mind,has gone a little too far,inviting a further contraction of the realeconomy.This is one of the causes of a number of problems,ranging from corporatebankruptcies to an increase in unemployment.
In Brazil,large-scale fiscal deficits havebeen primarily responsible for the erosion of market confidence.In this regard,it isessential for the Government of Brazil to pursue sound fiscal management under appropriateIMF programs.But,what might be learnt from the Asian experience I have just mentioned isthe need to pursue balanced policy management especially in the area of monetarypolicy,carefully monitoring developments of the real economy.
Also,considering that the fundamentalnature of these crises is that of liquidity crises,provision of adequate liquidity by theinternational community is necessary to prevent a future crisis,or to contain the impactshould one occur.On the one hand,it is obvious that the IMF will continue to play thepivotal role in such an effort.On the other hand,I also believe that the IDB and othermultilateral development banks should play an active role,too,as a crisis can jeopardizethe fruits of development and will certainly affect those who live in poverty most.
In this respect,I welcome the new emergency lending programestablished by the IDB last year in response to the crisis in the regional countries,andthe Banks prompt response in coordination with the IMF and the World Bank.
3. The issues to be addressed by the IDB group
Mr.Chairman:
There are a number of issues that need tobe addressed by the IDB Group.I would like to focus on the following three.
First,poverty reduction.In the LatinAmerican and Caribbean region today,150 million people still live on two dollars a day oreven less.The growth of regional economies in the 1990s has not solved the poverty issue;the relative gap between the haves and the have-nots is,in fact,wider thanbefore.Whats worse,those who live in poverty have been the most apparent victims ofthe latest economic crisis and natural disasters.
To win the fight against poverty,an increase in per capita incomethrough economic growth is of course essential.Whats equally essential is to paygreater attention to the social aspect of development.This includes the provision ofbetter education,better health services,and better medical care for those who live inpoverty; and an improvement in the social safety net.
In this context,I highly appreciate the fact that the three-yeartalks among the Member countries on the issue of concessional resources reached anagreement last December,thus paving the way for enhancing the IDBs capacity toaddress the poverty issue.
Second,the promotion of privatecapital inflows.
Due to the crisis,private capital inflowsto the region have been on the decrease.Against such background,it is a question of vitalinterest to the countries in the region how they might meet the enormous demand for thecapital needed to improve their economic infrastructure,the linchpin of development.
For the promotion of private capital inflows,I believe that it isessential for the IDB to make even better use of its catalytic function.
Also,for the growth of small- tomedium-sized companies in the region and for the promotion of foreign capital inflows tothese companies,the IIC (Inter-American Investment Corporation) can play a significantrole.
In this respect,I welcome the basic agreement just reached on thegeneral capital increase for the IIC.We must reach a final agreement at the earliestpossible time,thus strengthening the financial footing of the Corporation.As for Japan,westand ready to remain active in the negotiations to achieve an early settlement.
Third,the environment.
The urban environment issue,inparticular,is closely linked to poverty.As we all know,poverty in rural areas tends toinvite a concentration of population in urban areas.This serves as one of the causesbehind air pollution and water contamination,leading to a deteriorating the urbanenvironment.To improve that environment,it is essential to improve the urbaninfrastructure such as the water supply and sewerage on the one hand,and on the other handto improve the living standards in rural areas through rural development.
Another major environmental issue facing the region ispreservation of rain forests and other forestry resources,which has direct relevance toglobal warming.As for myself,I believe in the motto that forestry and water control lie atthe root of politics.So,I am fully aware that conservation of natural resources,such asforests and water,is of vital importance.Thus,I expect the IDB to demonstrate a stronginitiative,with a pan-regional perspective.
4. Japan Program
Mr.Chairman:
Finally,I would like to touch upon theJapan Program established with our support.
With the aim of promoting exchange of experiences and policyknow-how between Asia and the Latin American and Caribbean region,this Program willimplement researches and studies on such themes as comparative analysis of the financialcrises,environmental protection,the strengthening of small- to medium-sized companies andagricultural technology.
I hope that many countries in the region will take part in theseresearches and studies,so that the Program can contribute to their own development.
5. Concluding remarks
Mr.Chairman:
In closing,allow me to emphasize again thatit is essential for the IDB Group to play a pivotal role in furthering social and economicprogress in the Latin American and Caribbean region.
I would like to conclude by stating that Japan will continue to activelysupport such activities of the Group.
Thank you.