G-7, Asia tell Japan to swiftly fix economy

Mon, 22 Jun 1998 | Source: REUTERS

TOKYO (Agencies): Top financial officials from the Group of Seven (G-7) nations and Asia on Saturday turned up the heat on Japan to boost its flagging economy saying concrete action was "urgently needed".

The group, gathered in Tokyo to discuss Asia's year-long crisis, welcomed in its final statement U.S.-Japanese intervention to boost the yen and vowed to cooperate "as appropriate" in currency markets.

The statement praised the "renewed commitment" to economic reform of Indonesia's post-Soeharto government, and its plans for political reforms. It stressed the importance of Indonesia reaching an early agreement with the International Monetary Fund on its reform program.

The meeting's stance towards the IMF, however, marked another change of emphasis.

The communique approved of "the flexibility the IMF has shown in adjusting fiscal targets" to cushion the effects of price rises caused by its programs on poor people. The price rises have sparked public resentment of the IMF in many countries under its programs.

The World Bank and the Asian Development Bank were also praised for providing aid programs to reduce the suffering of the poor and strengthen countries' social safety nets.

In addition, the communique said that in the long term, the international community should work on "devising more effective means of crisis management with an appropriate role for private sector financing".

Deputy U.S. Treasury Secretary Lawrence Summers told a news conference at the end of the meeting he saw a "clear recognition" by Tokyo of the need to act fast.

But he warned that although joint intervention had created a "window of opportunity" for Japan to repair its economy, the chance would not last forever.

China drove home the point, urging the United States and Japan to keep supporting the yen, whose recent slide has put pressure on Beijing to devalue its own yuan currency -- thus far a bulwark in the crisis-hit region.

"We really welcome the U.S.-Japan joint intervention," Liu Mingkang, deputy governor of China's central bank told Reuters. "This intervention was successful. We also hope they will continue this kind of action."

Saturday's meeting came after Washington and Tokyo stunned markets on Wednesday by moving jointly to bolster the battered yen by intervening in the foreign exchange market.

Their first joint yen rescue mission in more than six years was prompted by fears that the Japanese currency's slide would rob Asia of its chance to recover and trigger another round of tit-for-tat currency devaluations.

Summers had told Tokyo it must quickly forge policies to revive its economy and cure its banking woes during a flurry of crisis talks with top Japanese officials on Friday.

The theme was repeated in the final statement issued by the G- 7 and Japan's 11 Asian neighbors, whose clear message was Tokyo must follow words with action -- and quickly.

"It is of vital importance to Japan, to the recovery of Asia, particularly those countries affected by financial market turbulence, and to the entire world economy, that Japan restore its banking system to health, achieve domestic demand-led growth, (and) open and deregulate its markets," the statement said.

The statement welcomed recent announcements on planned policy steps, but "emphasized the importance of concrete action to implement these plans quickly."

Britain's delegate told reporters Tokyo needed to set a "timetable and milestones" for measures to restore its economy.

Nigel Wicks, permanent secretary of the treasury, said if Japan set a timetable and stuck to it, Tokyo would regain the confidence and credibility of world financial markets.

The urgency of Japan's need to sort out its banking troubles was highlighted during the meeting by news that the troubled Long-Term Credit Bank of Japan was considering a merger as one way to solve its woes.

Bank sources told Reuters a merger with a commercial bank was one option, along with independent restructuring.

Japan's top financial diplomat Vice Finance Minister for International Affairs Eisuke Sakakibara -- who chaired Saturday's meeting said he thought his colleagues believed Japan was serious about reform.

Japan has enacted a 16 trillion yen ($117 billion)-plus stimulus package to kick-start its economy, which slipped into recession earlier this year.

In February, parliament passed a 30 trillion yen financial stabilization package including 17 trillion yen to protect depositors and 13 trillion yen to recapitalize banks.

The G-7 groups the United States, Japan, Germany, Britain, France, Italy and Canada. They were joined by officials from the so-called Manila Group, which is made up of other nations most affected by Asia's financial turmoil.