Australian Financial Review--9/30/98--www.afr.com.au
Japan: curb the hedge funds
By Tony Boyd, Tokyo
Japan is pushing for new controls on hedge funds and
other speculators to try to prevent sudden outflows of
short-term capital sparking further financial crises in
emerging markets.
Japan's Finance Minister, Mr Kiichi Miyazawa, said
yesterday he would put forward – at a meeting of finance
ministers from the Group of Seven to be held in
Washington on Saturday – ideas for restricting hedge
fund transactions in international markets.
Mr Miyazawa did not give details of the restrictions he
had in mind, but it is believed that two options being
considered include watered-down versions of the capital
restrictions imposed by Chile and Malaysia.
The Japanese proposal, which reflects disappointment
with the International Monetary Fund's international crisis
management, comes in the wake of British and French
demands to revamp the IMF's surveillance of global
capital movements.
The UK Chancellor of the Exchequer, Mr Gordon
Brown, said yesterday he would press for IMF and
World Bank reform at the G7 meeting.
"The world's financial system is over-exposed,
over-extended, under-supervised, under-performing and
in need of far-reaching reform," he told the Labour
Party's annual conference in Blackpool, England.
The Japanese Government is also reported to be putting
together an initiative to support troubled Asian countries,
which Mr Miyazawa is expected to announce at the
annual meetings of the World Bank and the IMF next
week in Washington.
Under the proposal, dubbed the Miyazawa Plan, Japan
will offer aid to Indonesia, Thailand, South Korea and
Malaysia.
Japan's support for a co-ordinated international move on
hedge funds goes against the basic IMF principle that
developing countries must conduct "orderly and properly
sequenced capital account liberalisation".
Moves to crack down on the activities of hedge funds
would run the risk of closing off all short-term capital
flows to emerging markets, according to an economist at
a think-tank in Tokyo.
The chief economist and director of the Institute for
International Monetary Affairs, Mr Koichiro Arai, said it
was not clear that the activities of hedge funds were the
trigger for the financial crises in various Asian countries or
in Russia.
In addition, he said it was not correct to say that all
emerging markets had suffered from sharp shifts in
short-term capital flows.
Mr Arai said economists at his institute believed the only
effective way of limiting short-term capital flows was to
take action at the time the capital entered the country.
In the case of Chile, this involves forcing investors to
place a portion of the capital inflow with the central bank
as a deposit. The amount of that deposit is raised if there
is speculative activity.
Chile also imposes a dealing tax on short-term capital.
However, the chairman of the US Federal Reserve
Board, Dr Alan Greenspan, said last week that despite
all the recent market turmoil Chile had been lowering its
barriers to capital inflows.
Any Japanese endorsement of the type of capital controls
recently adopted by Malaysia would be an affront to the
IMF, which has expressed deep regret at the closing of
the country's capital borders.
The IMF principle of capital account liberalisation is only
recommended when it is supported by, among other
things, a sound financial sector and appropriate
macroeconomic and exchange rate policies. |
