Japan Sakakibara warns of financial meltdown
Reuters, Friday, January 22, 1999 at 05:34
By Edwina Gibbs
TOKYO, Jan 22 (Reuters) - Japan's top financial diplomat
Eisuke Sakakibara warned on Friday that without reform of the
international finance system, the world risked a major financial
meltdown.
"I hope that in the next 10 to 20 years we could avoid both
depressions and war, but there is a definite risk of world
financial collapse. For that reason, reform of the international
financial architecture is so important," he told a luncheon
gathering with foreign journalists.
Sakakibara said he was not preaching against market forces or
market mechanisms but was against a U.S.-led "market
fundamentalism," where he said market forces tended to be left
unchecked without question.
In particular he attacked the International Monetary Fund's
policy prescriptions for countries in financial turmoil, saying
that, for example, the imposition of high interest rates in
Indonesia had not been a good idea.
Crisis after crisis could result in a major meltdown of the
world financial system, he said, but added that he thought such a
meltdown could be avoided. To that end, a mechanism to stabilise
financial markets was needed, he said.
He also challenged economists that say currency depreciation
would eventually restore market equilibrium in crisis-hit nations
and said that in many cases, such a move had led a freefall in
the exchange rate.
"I am very interested to observe what will happen to Brazil
in the coming weeks," he added.
Brazil, plunged into crisis by a huge loss in investor
confidence over worries about its fiscal reform plans, announced
on Monday that it would it float its currency. As of Thursday,
the real had dived 30 percent since last week.
Sakakibara, Japan's vice finance minister for international
affairs, also said floating an exchange rate in a crisis could
lead to a collapse of foreign exchange transactions and the same
applied to letting interest rates rise to defend exchange rates.
His speech followed one by Finance Minister Kiichi Miyazawa
in December where Miyazawa called for "managed flexibility"
between the yen, the euro and the U.S. dollar, which has been
interpreted by some as suggesting currency target zones.
But Sakakibara said Japan did not necessarily support the
idea.
"We will certainly discuss this...but at this moment our
position is not that of support for target zones," he said.
Sakakibara said authorities needed to approach markets with
the aim of enhancing competition and not the promotion of
unlimited freedom.
"Global capitalism needs to be restrained in its cross-border
transactions, be it through disclosure, supervisory and
prudential regulations, or outright controls," he said.
He called for "systemic diversity" in the world's financial
system that respected social and political differences.
Sakakibara also predicted that what he called the regime of
laissez faire or market fundamentalism dominated by the United
States in the 1980s and 1990s would not continue into the 21st
century.
U.S. dominance, political and economic, was declining, he
said, citing the unification of Europe and instability in global
capitalism.
But he acknowledged that a waning of U.S. influence could
reduce the degree of coordination between nations that currently
exists.
tokyo.newsroom@reuters.com))
Copyright 1999, Reuters News Service |
