Zero interest best for now, OECD official says

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PARIS — Japan should maintain its zero interest rate policy until it clearly enters a self-sustaining recovery, which can be better achieved through structural reforms, according to the top official of the Organization for Economic Cooperation and Development.

“The Japanese economy is more encouraging now than it was six months ago . . . however, it is still too early to judge if the recovery will be self-sustained,” OECD Secretary General Donald Johnston said in a recent interview with The Japan Times.

“This means that the current stance of monetary policy should be maintained,” he added. The Bank of Japan, while recently noting that economic prospects are brightening, has indicated that its current monetary policy will be maintained until private-sector-led growth can be confirmed.

Johnston noted that the difficulties in seeing the short-term prospects of the Japanese economy arise from the fact that, while strength may be seen in private-sector investment, personal consumption remains weak.

Although there will be greater improvement in investment if companies intensify their restructuring efforts, this could lead to greater uncertainty on the consumption front, due to worries over job security and household income, he said.

Johnston said the most important policy instrument that Japan has to secure the sustainable expansion of its economy is structural policy.

“Economic prospects depend crucially on the extent to which new business opportunities open up,” he said.

Johnston gave Japan credit for its new public nursing care insurance system and for deregulatory steps in telecommunications and electric power, but said that “More needs to be done to make the whole economic system more efficient, dynamic and innovative.”

As for the government’s expansionary fiscal policy, Johnston said a sharp change in direction should be avoided, but noted that “an early start on the path of fiscal consolidation would be appropriate,” given the size of Japan’s public debt.

Under former Prime Minister Keizo Obuchi, Japan spent trillions of yen to stimulate the economy through government bond issues. The OECD estimates that Japan’s public-sector debt is set to reach 114 percent of gross domestic product this year, making it the nation with the highest gross debt-to-GDP ratio among the OECD’s 29 member countries.

The economy will be high on Johnston’s agenda when he visits Japan in early May for talks with senior Japanese officials prior to the OECD’s annual ministerial meeting in Paris on June 26 and 27.

The meeting in June will include discussions about the “new economy,” the phenomena of uninterrupted high growth accompanied by low unemployment and low inflation as exemplified by the economy of the United States, he said. The role of information technology in the new economy will also be discussed.

The OECD is drafting its own report on the new economy and will release it shortly before the ministerial meeting, he added.

There will also be talks on the safety of genetically modified food, the problems of tax havens and a review of what signatory countries have done to implement the 1997 OECD convention against bribery of public officials, he said.

As most of these topics involve nonmember economies in one way or another, Johnston said the OECD will hold OECD Forum 2000 in Paris, which will be the first to gather some 700 delegates from nonmember economies, nongovernmental organizations and businesses and coincide with the June ministerial meeting.

At last year’s ministerial meeting, the OECD held for the first time a “special dialogue” session with eight nonmember countries — Argentina, Brazil, China, India, Indonesia, Russia, Slovakia and South Africa.