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159769
Wed, 02/09/2011 - 16:56
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https://www.oananews.org//node/159769
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IMF deputy chief urges quick reform of Japan's public finances
TOKYO, Feb. 9 Kyodo - Japan's huge public-sector debt and budget deficit are not sustainable in the longer term and fiscal reforms are critically important for the government, a deputy chief of the International Monetary Fund said Wednesday.
Naoyuki Shinohara, a deputy managing director of the IMF, also said Japanese banks may need to secure more capital in order to counter the challenges they face in their businesses.
''It is important to reach a specific agreement on how to restore the public finances as soon as possible,'' Shinohara, a former Japanese vice finance minister for international affairs, told a press conference after joining a seminar in Tokyo.
He was referring to the ongoing efforts by Prime Minister Naoto Kan to outline the social security and tax reforms by the end of June. Kan has been struggling to lure opposition lawmakers into debates to that end.
The warning from the IMF, the Washington-based international lender, came as Japan has been under growing pressure to restore its fiscal health, the worst among major developed countries with the central and regional governments' gross debt approaching 200 percent of the nation's gross domestic product.
Shinohara said Japan would face immediate danger from its fiscal problems. ''The Japanese public has lots of savings, and most of government debt is financed by domestic investors,'' he said, denying any risk of massive selling of Japanese government bond by foreigners, which would deteriorate the country's external balance and trigger a long-term interest rate hike.
But the deputy chief of the IMF also said that leaving the situation as it is would ''lead to serious problems in the future.'' To prepare for a possible economic slowdown after fiscal tightening, the government must ''boost growth rates through structural reforms at the same time,'' he said.
On currency, while acknowledging that the strength of the yen has hurt the earnings of exporters in Japan, Shinohara said the current level of the Japanese currency is ''in a range almost consistent with medium-term fundamentals'' of the Japanese economy.
As for the argument that the IMF should consider the Chinese yuan as one of the world's leading currencies and give it a share in the Special Drawing Rights, along with other major currencies, Shinohara suggested the fund is open to such a proposal.
The SDR is an alternative reserve currency set up by the IMF and currently made up of four major currencies -- the U.S. dollar, the euro, the British pound and the yen.
France, which will host this year's meetings of the Group of 20 leading economies, is expected to propose including the yuan in the basket of SDR currencies.
The IMF reviews the weight of the four currencies in the basket every five years, and the latest revision was conducted last year. However, Shinohara said the IMF has an agreement that it would conduct the process whenever necessary.
Delivering a speech earlier in the day at a seminar on banking supervision, Shinohara mentioned some risks facing Japanese banks.
''Given existing risk exposures and the new regulatory capital requirements, banks may need to further increase their capital buffers,'' he said. ''With outstanding loans falling across the banking system and thin interest margins, it is important that Japanese banks seek to raise their core profitability by diversifying their revenues sources.''
He also said banking supervision and regulation are crucial topics when discussing the world after the global financial turmoil. By pointing to asset price hikes in some of the Asia-Pacific economies amid growing capital inflows, Shinohara said financial regulators should ''not become complacent'' three years after the crisis hit the world economy.
Naoyuki Shinohara, a deputy managing director of the IMF, also said Japanese banks may need to secure more capital in order to counter the challenges they face in their businesses.
''It is important to reach a specific agreement on how to restore the public finances as soon as possible,'' Shinohara, a former Japanese vice finance minister for international affairs, told a press conference after joining a seminar in Tokyo.
He was referring to the ongoing efforts by Prime Minister Naoto Kan to outline the social security and tax reforms by the end of June. Kan has been struggling to lure opposition lawmakers into debates to that end.
The warning from the IMF, the Washington-based international lender, came as Japan has been under growing pressure to restore its fiscal health, the worst among major developed countries with the central and regional governments' gross debt approaching 200 percent of the nation's gross domestic product.
Shinohara said Japan would face immediate danger from its fiscal problems. ''The Japanese public has lots of savings, and most of government debt is financed by domestic investors,'' he said, denying any risk of massive selling of Japanese government bond by foreigners, which would deteriorate the country's external balance and trigger a long-term interest rate hike.
But the deputy chief of the IMF also said that leaving the situation as it is would ''lead to serious problems in the future.'' To prepare for a possible economic slowdown after fiscal tightening, the government must ''boost growth rates through structural reforms at the same time,'' he said.
On currency, while acknowledging that the strength of the yen has hurt the earnings of exporters in Japan, Shinohara said the current level of the Japanese currency is ''in a range almost consistent with medium-term fundamentals'' of the Japanese economy.
As for the argument that the IMF should consider the Chinese yuan as one of the world's leading currencies and give it a share in the Special Drawing Rights, along with other major currencies, Shinohara suggested the fund is open to such a proposal.
The SDR is an alternative reserve currency set up by the IMF and currently made up of four major currencies -- the U.S. dollar, the euro, the British pound and the yen.
France, which will host this year's meetings of the Group of 20 leading economies, is expected to propose including the yuan in the basket of SDR currencies.
The IMF reviews the weight of the four currencies in the basket every five years, and the latest revision was conducted last year. However, Shinohara said the IMF has an agreement that it would conduct the process whenever necessary.
Delivering a speech earlier in the day at a seminar on banking supervision, Shinohara mentioned some risks facing Japanese banks.
''Given existing risk exposures and the new regulatory capital requirements, banks may need to further increase their capital buffers,'' he said. ''With outstanding loans falling across the banking system and thin interest margins, it is important that Japanese banks seek to raise their core profitability by diversifying their revenues sources.''
He also said banking supervision and regulation are crucial topics when discussing the world after the global financial turmoil. By pointing to asset price hikes in some of the Asia-Pacific economies amid growing capital inflows, Shinohara said financial regulators should ''not become complacent'' three years after the crisis hit the world economy.
