International Herald Tribune Paris, Wednesday, December 16, 1998Japan Calls for Currency Regime
World Needs New 'Financial Architecture,' Miyazawa Says
Compiled by Our Staff From Dispatches
TOKYO - Japan's finance minister called Tuesday for a ''new international financial architecture'' that would overhaul the way the International Monetary Fund works and allow a ''managed flexibility'' among the world's major currencies.''Talk about reforming the international financial architecture should not be just a passing fancy,'' Kiichi Miyazawa, a 79-year-old veteran politician, told the Foreign Correspondents Club of Japan.
Mr. Miyazawa called for studying creation of an ''exchange-rate regime'' that would ''bring about greater stability on the one hand and needed flexibility on the other, among the yen, the U.S. dollar and the euro.''
Mr. Miyazawa said the recent Asian currency turmoil had revealed the risk of pegging regional currencies to a single foreign currency such as the dollar.
The finance minister also acknowledged that Japan's economy remained weak and said it would be at least two years before officials could determine whether there is positive and sustainable growth.
He said Japanese companies may start to ''ruthlessly'' cut jobs next year to cope with the recession, pushing up the country's record-high unemployment rate of 4.3 percent.
Noting that ''the IMF is not very popular in this part of the world,'' Mr. Miyazawa said that in the absence of an alternative institution, the IMF should be improved.
He said the IMF needed improvement and that combining the agency with the World Bank ''might be one way if it improves efficiencies.''
While Mr. Miyazawa's remarks on a new exchange-rate regime were not specific, analysts interpreted his remarks as backing the creation of a system of targeted bands within which currencies would trade. In Europe, Germany's finance minister, Oskar Lafontaine, created a controversy this autumn by calling for a managed exchange-rate regime.
''Although it is a difficult challenge, we have to work hard to attain this 'managed flexibility' among the three currencies,'' Mr. Miyazawa added.
''Setting a target zone may be useful in the short-to-medium term. But macroeconomic cooperation would be needed for it to work,'' said Taisuke Tanaka, a global foreign-exchange strategist at Credit Suisse First Boston in Tokyo. ''Japan has to first correct existing domestic and external imbalances before it could consider such a step.''
Mr. Miyazawa also said that countries across Asia should contribute to a new regional fund to protect their currencies and fight off speculators. Similar currency support funds could be used in Latin America and Eastern Europe and should accompany capital controls as part of a new approach to global economics, he said.
He said such a facility would be different from what the IMF now offers, because it ''would not require pre-agreed arrangements, but would base itself primarily on good track records certified through regular surveillance.''
Commenting on conditions the Fund attached to massive bail-out programs for Thailand, South Korea and Indonesia, Mr. Miyazawa said ''it might be advisable for the IMF to refrain from requiring too broad or too ambitious structural reforms at a time of crisis.''
Japan plans to set up a $30 billion fund for loans to its Asian neighbors. A previous plan was criticized by the United States as running at cross purposes to the IMF. Mr. Miyazawa said Japan's latest push to set up a fund would lead to further discussion of a regional currency support mechanism.
But analysts said Japan was in no position to guide such a regional fund until it cures its own economic ills. The country's economy is deeply mired in recession and the Bank of Japan's key quarterly tankan survey of corporate sentiment released on Monday continued to show a deteriorating business sentiment.
''It may take at least two years until I can decide if we are at a sustainable growth basis or not,'' Mr. Miyazawa said. But he said the economy had bottomed.
''I interpret yesterday's tankan as indicating the situation will not get worse,'' Mr. Miyazawa said. ''I don't think things will get better immediately.''
He said that rising unemployment was ''my main concern for the coming year.''