Statement by Koki Kobayashi,
Senior Vice Minister of Finance,
Government of Japan
at the Meeting of G-20 Finance Ministers
and Central Bank Governors
New Delhi, November 23, 2002
|I. Crisis Prevention|
The international financial system has experienced chronic financial crises. Inrecent years, we have seen a currency crisis in Mexico in 1994, financial crisisin Asia in 1997 and crises in Russia and Brazil in 1998. The crises in Argentinaand Turkey since last year are still fresh in our memories.
In order to prevent such financial crises from occurring, it is essentialthat we strengthen the surveillance functions of the IMF and other multilateralinstitutions. Particularly important is appropriate policy management, whichincludes the adoption of an appropriate exchange rate system and prudent debtmanagement, as well as the proper surveillance of such policies by theinternational community.
Adoption of exchange rate regime
With regard to a fixed exchange rate regime, one option is to fix a currencyto a basket of currencies rather than to a single currency, when trade andinvestment partners are diversified. As in the case of the introduction of asingle currency in Europe, adopting a single currency could be anotheralternative, depending on the degree of labor mobility and integration ofintra-regional trade and the degree of similarities of economic structureswithin the region.
In adopting an exchange rate regime, it is important to take into account thepros and cons of each regime as well as economic fundamentals which support sucha regime, for example, the level of foreign exchange reserves, trade structure,and the degree of capital account liberalization. It is particularly importantthat each country implement appropriate macroeconomic policy and adopt anexchange rate regime that is consistent with its economic policy.
For example, in the case of Argentina, the Argentine government implemented amacroeconomic policy that was not compatible with its currency board system,forcing the system to be abandoned in the end. To implement a macroeconomicpolicy that is consistently compatible with the currency board system is verydifficult to achieve, but this example shows that proper surveillance ofmacroeconomic policy is of particular importance.
It is also important to make careful analysis of the economic parameterswhich tend to precede crises, taking advantage of our past experiences. Forinstance, it is important to closely monitor the ratio of short-term debt toforeign exchange reserves. It is also necessary to sharpen our methods ofanalysis, while making use of "debt sustainability analysis" now beingdiscussed at the IMF.
Capital account liberalization
To resolve an international financial crisis three pillars are essential: (i)official sector lending from the IMF and other international financialinstitutions; (ii) policy adjustment by the government facing the crisis; and(iii) private sector involvement (PSI). The IMF, the G7, and other forums arecurrently discussing these issues, and steady implementation is called for.
Official sector lending
As for the IMF's quotas, which constitute the basis for the volume of IMFlending, we are now approaching the final phase of the general review which isdone once every five years. The recent increase in cross-border movements ofcapital requires that sufficient financial resources be available to resolvefinancial crises and I believe that the current level of the IMF resources isnot adequate. I strongly hope that an agreement will be reached on the increaseof the quotas before the deadline of end-January 2003. Further, the currentallocation of quotas does not reflect recent international developments,particularly the growth of the Asian economy. It is therefore necessary toreview the quotas so as to realize more appropriate allocation.
Private sector involvement
With regard to collective action clauses, the G7 Finance Ministers agreed attheir last meeting that G7 countries should include such clauses when they issuebonds outside their own jurisdiction. In the markets of the UK and Japan, suchclauses are already introduced in the bonds contracts. I hope that emergingmarket economies will include collective action clauses based on the modelclauses now being examined by the G10, with close consultation with the privatesector when they issue bonds in the United States.
On the statutory approach, as it was agreed at the September meeting of theIMFC, the IMF will develop a concrete proposal by the next IMFC meeting in May,and I look forward progress being made on this issue.