Miyazawa Tells Rubin Japan to Take 'All Possible Steps' to Revive Economy
Japan Taking 'All Possible Steps,' Miyazawa Pledges (Update3) (Changes headline; adds comments from Miyazawa.)
Washington, Oct. 3 (Bloomberg) -- Japan will take ''all possible steps'' to stimulate its economy and reform its banking system, Japanese Finance Minister Kiichi Miyazawa told U.S. Treasury Secretary Robert Rubin and Federal Reserve Chairman Alan Greenspan.
The ministers, joined by Bank of Japan Governor Masaru Hayami, held an hour-long meeting at the Treasury Department before this afternoon's gathering of finance ministers and central bank governors from the Group of Seven leading industrial nations.
Miyazawa ''stressed the importance his government places on rapid implementation of fiscal stimulus measures, particularly in light of recent economic performance,'' the U.S. Treasury Department said in a statement, read by a Treasury spokesman.
He said his government intended to take ''all possible steps'' to restore financial stability and reverse the economy's decline, the statement read.
Japan is in its deepest recession since the end of World War II. The Economic Planning Agency said last week it will soon revise its forecast for the year ending next March 31 from the government's official projection 1.9 percent growth. Most economists expect Japan's economy to contract for the year.
The statement also repeated language regularly used by the U.S. to describe U.S.-Japanese discussions of exchange rates. ''Minister Miyazawa expressed his concern for the excessive weakness of the yen, and Secretary Rubin shared his concern,'' the spokesman said.'' They reiterated their commitment to continue to cooperate closely in the exchange market as appropriate.''
Miyazawa, speaking to Japanese reporters after the meeting, said the issue of foreign exchange wasn't discussed, since ''now is not the time'' to talk about it.
Fast Action
Rubin, according to the statement, ''emphasized the increased urgency of fast and effective action'' to boost Japan's economy.
U.S. officials have been frustrated by Japan's inability to stimulate domestic growth, which they see as critical to the rest of Asia recovering from its own, deeper recession. The secretary told reporters yesterday Japan's woes will be a central topic at the G-7 meeting.
Japan's parliament this week approved laws empowering the government to seize insolvent banks and help lenders wipe bad debts off their books, a step analysts said is vital to reviving the economy.
The lower house vote ended months of haggling over how to head off an escalating banking crisis. If the upper house approves the measures next week, as expected, it may allay concern that Japan's troubles will spark a global recession. ''Japan is the key to the whole global economy,'' said Bill Meehan, chief market analyst at Cantor Fitzgerald & Co. in New York.
At a meeting of Southeast Asian finance ministers this morning, Miyazawa acknowledged Japan's responsibility. ''I'm fully aware of the importance of a Japanese economic recovery,'' he told reporters. ''If Japan doesn't recover, Asia cannot recover.''
Miyazawa told reporters after his meeting with Rubin that the Treasury secretary's ''number one'' concern is ''what happened to (Japan's) 13 trillion yen ($9.6 billion) plan'' to inject capital into the nation's banks.
While Japan's parliament approved that money in February, opposition legislators have objected to the use of public funds to bail out banks. Miyazawa said he told Rubin Japan will eventually use that money, and ''won't reduce the amount.''
Japanese Loan Proposal
Japanese lawmakers haggled for months over the rescue plan, which includes setting up an agency similar to the U.S. Resolution Trust Corp. to buy banks' bad loans.
Japanese banks are saddled with more than 77 trillion yen in problem loans. As a result, many have curbed lending at home and elsewhere in Asia, where Japan is the largest investor.
During their meeting, Miyazawa offered details of a $30 billion Japanese loan program for Asia, formally announced at the Southeast Asian finance ministers meeting this morning. Rubin ''welcomed'' the plan, the Treasury statement said.
Under the proposal, the Export-Import Bank of Japan will offer $15 billion in short-term swap arrangements to facilitate trade. Another $15 billion would be made available in medium- to long-term loans for business expansion and debt restructuring. ''This fund is not only for the benefit of (Japan's neighbors) but also for our benefit,'' Miyazawa told the Asian ministers. Japan will carry out ''urgent bilateral talks'' with these Asian countries to flesh out the plan's details, he said.
Asian Welcome
The Asian ministers welcomed the plan. ''We have gone through a lot of reforms, but we still find our economy contracting, so something needs to be done in terms of more government spending,'' said Tarrin Nimmanahaeminda, finance minister of Thailand.
A year ago, the U.S. helped shoot down a Japanese proposal for a $100 billion Asian economic fund, fearing it would undercut the International Monetary Fund. Rubin said yesterday the U.S. sees the new plan as different. ''I think that was a very different proposal at a very different point in time, and I think it's not analogous to this,'' he said. Rubin said U.S. officials had discussed the proposal with the Japanese as it was developed. ''I think it's a constructive thing to be doing,'' he said. ''I do think it's extremely important, however, that that not distract attention from what is key and is just by vast multiples more important, which is that Japan get back on track,'' Rubin said.
Miyazawa urged the U.S. Congress to approve legislation to inject an additional $17.9 billion into the IMF, saying the fund couldn't function without that money. Congress has withheld the money, with Republicans demanding the IMF be more open about its operations.
Global Growth Risks
The G-7 -- the U.S., Japan, the UK, France, Italy, Canada and Germany -- will also discuss ways to help contain the global economic crisis, which has spread to Russia and Latin America since the ministers last met in April.
Last month, the G-7 issued a statement saying recession is now a bigger global danger than inflation. They pledged cooperative action to stimulate economic growth, though they later backed off the idea that could mean coordinated interest rate cuts. Rubin yesterday also suggested there would be no change in the G-7's policy that currency values should reflect economic fundamentals.
G-7 members will also discuss a U.S. proposal for a new IMF lending mechanism to help bolster countries facing economic crises triggered by problems in other nations.
The guarantee of such funding would make it easier for countries without fundamental economic problems to convince investors they can pay their obligations. That's a departure from IMF lending rules, which dictate that countries must be in economic danger before loans can be made.
The move comes at a time when Brazil -- a country that's drawn praise from the Clinton administration for its economic reform efforts -- is seeing an outflow of dollars that last month alone amounted to more than $18 billion. The G-7 countries are expected to unveil a Brazil aid package of as much as $30 billion early next week.
In his meeting with Rubin, ''Minister Miyazawa welcomed the suggestion of exploring a possible new mechanism,'' the Treasury spokesman said.
Change In Germany
With Germany's government in limbo after federal elections last Sunday, the main talker for Europe's biggest economy will be Bundesbank President Hans Tietmeyer. Tietmeyer, who favors stricter banking supervision and greater transparency for emerging economies, has spoken out against making IMF funds too readily available.
The change of government promises a turning point in Germany's stance on international monetary matters, though. Chancellor-elect Gerhard Schroeder, who meets with U.S. President Bill Clinton Friday, said this week he would push for lower interest rates in Europe and for the creation of currency bands between the world's major currencies.
Tietmeyer and other Bundesbank officials have said they won't budge on interest rates in the three months remaining before a common European currency is introduced. Instead, high- rate countries like Ireland, Italy and Spain will have to cut their rates to the ''lower range'' of rates among the 11 adopting the euro in January. Those rate cuts, say the Bundesbank, will effectively loosen European monetary policy.
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