50 Years After Japan's Participation in the IMF and the World Bank
Toyoo GYOHTEN (President, Institute for International Monetary Affairs)
Japan's Benefits and Responsibilities
Japan has experienced many ups and downs for the last fifty years, since its participation in the membership of the IMF and the World Bank in 1952. In the 1950s and 1960s, Japan received a great deal of benefits from those international organizations, and as a result succeeded to achieve miraculous reconstruction and development. In particular, the World Bank provided not only financial means but also know-how and software for economic infrastructure such as dams, highways and "bullet trains."
Regarding the international monetary system, Japan benefited from the fixed rate of exchange at the level of 360 yen per dollar, where the yen was undervalued for a long time. This arrangement provided a foundation for the development of Japan's exporting industries.
Afterwards, however, Japan suffered from its own success experience and was not able to reform itself. Furthermore, Japan was too slow to respond to the end of the Cold War and the trend of globalization in the late 1980s and the early 1990s. False expectations of return to the successful years prevented reform in Japan.
Japan has considerable responsibilities to maintain the framework of the IMF regime, and should bear its fair share to do so. Unlike those days, the IMF and the World Bank have to face complicated challenges such as instability and poverty in the developing countries in recent years. Japan's economic condition is quite important not only from the domestic viewpoint but also from the international standpoint, and therefore must show to the outside world its will to reform and revitalize the economy.
Importance of Competitiveness and Reform
For that purpose, it is crucial for Japan to regain its competitiveness. It is a "race against time" as the society is rapidly aging and facing challenges from China. Transformation must be made from the bureaucracy–led to the private sector-led economy, and also from exporting-type manufacturing to domestic-type information and services.
I believe that the Koizumi administration has taken the first step in that direction. It is urgent to push such reforms as the privatization of the postal savings system and the public highway corporation despite opposition from vested interests. It would be impossible to regain international competitiveness if as much as one third of the financial sector remains under government control.
Regarding tax reform, a medium-term vision of the Japanese economy should be drawn first. The recent proposal of the government tax council apparently lacks the viewpoint to strengthen the competitiveness of the economy in general and the private sector-led service economy in particular. I believe that tax cuts will be effective, assuming the balance of the budget in the medium run, but not necessarily in the short run. Also, further deregulation should be possible to promote private sector activities in newly developing fields.