Posted by Gilmour Poincaree on November 14, 2008

14 Nov 2008, 09:43 hrs IST


WASHINGTON: Japan proposed a raft of steps on Thursday to help overcome the global financial crisis and avoid a future meltdown, including offering to boost the IMF’s firepower and calling for tougher supervision of credit rating agencies.

In a position paper released ahead of a leaders’ summit of the Group of 20 industrialised and emerging nations in Washington, Prime Minister Taro Aso said Tokyo would continue to support the dollar-based currency system despite market concerns about its outlook as U.S. economic power declines.

Japan, which holds the world’s second-largest foreign reserves at $980 billion, would be ready to lend up to $100 billion to the International Monetary Fund (IMF) to assist emerging economies if the Washington-based lender finds itself with insufficient funds, he said.

Behind the prime minister’s comments is a view in Tokyo that Japan had to learn its lesson the hard way from its prolonged response to tackling its own financial crisis in the 1990s.

He said other nations should also consider clarifying management responsibility when injecting public funds into banks, and adopt fair valuation and early disclosure of non-performing loans.

“At present, capital flows have become so global that they can occur instantaneously to take advantage of any differences that may exist among the regulations of various countries,” he said. “Concerted action to help converge each country’s various policy efforts to prevent a recurrence of the financial crisis is now an unavoidable challenge.”

On the role of the IMF, he somewhat distanced himself from some European views that the Washington-based lender should be entrusted with primary responsibility over financial regulation.

Instead, he said the Financial Stability Forum (FSF) should be given a clear status above standard-setting international organisations such as the Basel Committee, adding that the forum’s work with the IMF should be reinforced.

He said more emerging nations should belong to the FSF, whose members include international bodies and the Group of Seven nations plus Australia, Hong Kong, the Netherlands, Singapore and Switzerland.

In a proposal that may not sit well with the U.S. free-market focus, he said there should be discussions on providing legal authority to government officials over rules on credit rating agencies. He also called for fostering local credit rating agencies, such as in Asia, and to further develop a regional scheme to help provide dollar funding as in Asia’s web of currency swap agreements called the Chiang Mai Initiative. But he stressed that “open regionalism complements globalism in a positive sense.”



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