WASHINGTON (Kyodo) Finance chiefs from the top developed powers met Friday in Washington and started down-to-earth talks on how to reverse the global economic crisis, testing Japan’s ability to play a prominent role in forming a new financial order instead of just handing out money.
“Now the party is over. It’s time to work,” a Japanese official said, summing up the significance of their two meetings just three weeks after the Group of 20 summit of leading and emerging economies in London.
The meeting reunited finance ministers and central bankers from the G7 and G20, but they were no longer in the festive mood from their previous joint conference.
They were somber because their leaders had agreed mostly on basics in London, rather than the specifics of how to lift the world economy out of the crisis.
To draw a simple analogy, the G20 leaders managed to slap together a book with a great title, cover and perhaps a table of contents, but it still lacks a proper story line. This left their financial gurus and policymakers with the painstaking task of giving form and substance to the ideas that were sketched in London, instead of floating another grandiose vision.
Thus the statement released after the one-day meeting was not as flashy as the one released by the G20 leaders on April 2 replete with eye-catching sentences and large, tricky numbers.
“Economic activity should begin to recover later this year,” the statement said, broadly endorsing the substance of the London communique.
“There were no new headline-grabbing big themes” because it is now more important to put the pledges into action, said Finance Minister Kaoru Yosano during a news conference after the gathering in the U.S. capital.
One of the few concrete outcomes of the London summit was an agreement to triple the money available to the International Monetary Fund to an unprecedented $750 billion to assist cash-strapped developing countries.
Japan and the European Union have already pledged $100 billion, and several other countries, including Canada and Switzerland, have said they are ready to provide more.
But where the rest of the planned $500 billion will come from has not been sorted out yet.
Japan signed the terms of its $100 billion commitment to the IMF in February on the sidelines of the finance chief’s previous G7 meeting in Rome.
Japan’s gesture the IMF last November was widely praised as a major contribution to the stability of financial and capital markets.
“It was very significant that Japan set a precedent for other economies over the reinforcement of the IMF,” said Makoto Utsumi, a former vice finance minister for international affairs.
For many years, the IMF’s fundamental mission was to lend to countries suffering from balance of payments difficulties. But the institution has since been given a new mandate in light of the recent turbulence.
The Washington-based agency has been assigned to play such roles as helping countries in dire fiscal straits, boosting global liquidity, and carrying out economic surveillance.
Utsumi, now president of Japan Credit Rating Agency Ltd., said that the IMF’s new responsibilities were inevitable and that Japan, which is second in voting power in the institution, will play a more active role in redefining its nature.
Eiji Hirano, formerly the Bank of Japan’s director for international affairs, is hoping Japan will hone its skills at setting new global financial standards now that the economic crisis has laid bare all the shortcomings of the Anglo-Saxon model of capitalism.
“Japan needs to exercise strong leadership over how to redesign the international financial architecture by offering fresh ideas,” on top of providing money, said Hirano, who is executive vice president of Toyota Financial Services Corp.
Japan’s financial system is relatively straightforward, unlike many in the West that now need government help, Hirano said.
“Japanese authorities have the rights and duty to express their thoughts in a neutral setting more on the international stage,” he said. “If Japan does not step forward now, I wonder when it will?”
Japan could also act more to enhance the voices of such emerging economies as China and India, given that the world economy is desperate for their continued growth to make a comeback.
But many Japanese policymakers believe the G7 is still the most useful framework for addressing pressing economic issues because it is modest in size and rich with experience in working together — an arrangement that has lasted for more than three decades.
Nevertheless, it would be unrealistic not to cooperate closely with fast-growing economies, and Japan — the only Asian country that’s a member of the G7 club — should not be afraid to lose its clout, even if the stature of the G20 increases.
The story writers at the London summit have just begun their work. Whether it will have a desirable plot, happy ending and a big role for Japan remains to be seen.
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