Japan is hosting an annual meeting of the International Monetary Fund and the World Bank for the first time since 1964. A lot has happened in the intervening very nearly half a century — to both Japan and the IMF. Yet both Japan and the IMF do not quite seem to realize just how much has happened to them over those years.
Both Japan and the IMF seem to be suffering from the same disease. They cannot see themselves in the mirror. It is not that they have become invisible to themselves in the mirror. They do see reflections. The problem is that those reflections do not reflect properly. Like the Mirror of Desire in Harry Potter’s Hogwarts School, the mirrors that Japan and the IMF keep gazing into will always show them not their faces but their hearts’ desire.
In Japan’s case its heart’s desire is to be forever young. Like the legendary Faust, Japan is ever willing to sell its heart to the devil in return for lasting youth. It refuses to acknowledge itself as a grown-up economy. Indeed, its heart’s desire would surely be to have time stop in 1964, in which it was not just host to the IMF-World Bank meeting. Tokyo was also the venue for the Summer Olympic Games that year. Oh, to entertain the global financial mafia and sports celebrities in one’s metropolis in one and the same year. How glorious, how wondrous, how desirous. All the more desirous, given that double-digit economic growth was starting to become something of a habit with the advent of the 1960s.
It is all these glories and wondrousness that Japan wants to see in its Mirror of Desire. What it insists on seeing in there is a young and unlined face, full of vigor and hope. What it should actually be seeing is a face that is showing its age: full of lines and the melancholy of a lifetime of toil and trouble. It is a tired face, to be sure. Yet it is also a face of wisdom. Or so it should be.
To have experienced the double-digit growth of the 1960s and the prolonged deflation of the 1990s and thereafter in a matter of half a century is no small accomplishment. Much ought to have been learned in that time frame.
Japan would do well to look, not at its heart’s desire, but its actual face as it contemplates how to conduct its economic affairs in the years to come. A dreamer of yesterday’s dreams will never be able to dream the dreams of tomorrow. Nostalgia for yesterday will forever get it the way of discernment about the prospects of tomorrow. It is a senior citizen of considerable refinement that is hosting the IMF-World Bank meeting this time round. Not the rosy cheeked youth of inexperience of 1964. The difference ought to show. If only Japan would not keep looking in the Mirror of Desire.
As for the IMF, its heart’s desire is to be what it was in 1946 when it was first established. Back then, the U.S. dollar was king in the world of currencies. The dollar towered over the rest as the only currency convertible to gold. As guardian and caretaker of that currency, the IMF could take pride in itself with all legitimacy as the king’s highest advocate and confidant. It could consider itself as elite among international organizations.
Its predominant role was to ensure the stability of the fixed exchange rate system centering around the dollar. To that end it could warn and bully nations into keeping their balance of payments deficits in check. Should a nation run large deficits in spite of all the warnings and bullying, it would fall short of the dollars to pay for the all the goods that it had imported notwithstanding their income constraints. Once a nation falls into those straits, the IMF would step in to lend them the money to pay for their excesses but would demand compliance with whatever course it thought the offending country should follow in order to get its balance of payments imbalances back into line.
The IMF wielded such influence to the extent that the dollar was the international key currency, in demand by all and coveted by all. That in fact was the situation in 1964 when Japan hosted the IMF-World Bank meeting for the first time. But only just. Already at that point in time, the dollar’s international key currency position was becoming somewhat precarious. As postwar reconstruction approached completion, Japan and Europe no longer needed dollars in the way that they did at the start of the process. The golden cyclical motion of Japan and Europe buying U.S. goods with U.S. dollars provided to them through U.S. aid was starting to break down.
Now of course we have come a very long way indeed from that situation. Nobody is that particularly short of dollars these days. People have even stopped talking so much about balance of payments positions, now that the world has become globalized and nobody is quite sure where internal ends and external begins among national economies. If anything, it is the U.S. that suffers chronically from balance of payments deficits. Yet the IMF still wants to see its erstwhile glorious self in the Mirror of Desire.
It is about time both Japan and the IMF did something about their escapism. It is to be hoped that this meeting will mark the beginning of their reality check.
Noriko Hama is an economist and a professor at Doshisha University Graduate School of Business in Kyoto.