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2009年9月 9日 (水)


--The Asahi Shimbun, Sept. 8(IHT/Asahi: September 9,2009)
EDITORIAL: The G-20 summit

Almost a year has passed since the collapse of U.S. investment bank Lehman Brothers, a development which threw the world economy into a "once-in-a-century" crisis. While the global recession is not yet over, signs of recovery are gaining momentum.

In a meeting in London last week, finance ministers and central bank governors of the Group of 20 major economies stressed the effects of the actions their governments have taken in response to the crisis--fiscal stimulus packages worth 500 trillion yen in total and measures to support financial systems.

"Our unprecedented, decisive and concerted policy action has helped to arrest the decline and boost global demand," the members said in a joint statement. The declaration reflects their confidence based on the fact that this new framework of international cooperation, which involves China and other emerging economies, succeeded in averting a replay of the Great Depression.

Leaders of the G-20 nations are slated to gather in Pittsburgh, Pennsylvania, later this month for a financial summit. Yukio Hatoyama, president of the Democratic Party of Japan, will attend the meeting as Japan's new prime minister. The London meeting offered some clues as to what Hatoyama should do at the Pittsburgh summit.

The communique, while claiming the global economy is improving, nevertheless said, "We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies... ." That is precisely what the countries need to do, given the rising unemployment rate in the United States, Europe and Japan and the possibility that major economies could stall again if policy efforts are relaxed now.

Hatoyama needs to express his commitment to supporting policy cooperation among the G-20 nations and make a convincing explanation about how his party's election promises will stoke Japan's economic growth by expanding domestic demand.

One defining theme of the Hatoyama government is structural reform of the state budget, as symbolized by the DPJ's pledge to cut public works spending to finance a new child allowance program. The DPJ claims its policy agenda as a whole is economically "neutral." But the initial effect could be fiscal tightening. Hatoyama should promise to the world that his priority will be on economic recovery.

In addition to promising cooperation with the rest of the world in overcoming the global recession, Hatoyama should also make constructive proposals for preventing a similar crisis in the future.

Especially important is reining in the compensation of the CEOs of financial institutions. Blinded by the hefty bonuses offered as rewards for big profits, top executives of many financial institutions recklessly sold risky financial instruments. When their companies incurred heavy losses due to the financial collapse, they then turned to their governments for tax-funded bailouts. To ensure this won't happen again, nations need to effectively tighten financial regulations.

In this regard, another key issue is how to bolster the capital bases of financial firms after the economy regains strength. There are detailed rules on the capital adequacy of banks. But the shadow banking system, which involves investment banks and other non-bank financial institutions, has not been subject to any effective regulations concerning their capital health. There are good reasons for imposing capital requirements on these institutions.

Hatoyama will be in a position to make a meaningful contribution to international efforts to put the world economy back on track and establish a system to prevent a similar crisis from flaring. He can do so by speaking about Japan's experiences in dealing with the bad debt mess left by the collapse of its own bubble economy and about the process of restoring confidence in its financial system.

Reform of the International Monetary Fund and the World Bank is also important for enhancing international cooperation for overcoming the current crisis and preventing a new one.

One major challenge is to give a bigger say to emerging and developing countries. Hatoyama should voice strong support to the idea at the Pittsburgh summit.


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