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Wednesday, Oct. 10, 2012

Can finance experts deliver?


Special to The Japan Times

HONG KONG — Several hundred finance ministers, central bank governors, officials supported by thousands of bankers and other hangers-on are converging on Tokyo for the annual financial jamboree of the International Monetary Fund and World Bank. If the world's financial leaders had any sense they would convene the meetings and immediately adjourn them until early next year when they might have more relevance, with fresh leaders able to tackle the horrendous economic and social problems confronting the world.

What kind of cuckoo land do politicians live in that they are wasting their time and taxpayers' money on the long trek to Japan when they lack the imagination, the energy and the popular political legitimacy to offer solutions to a grave crisis?

The world's top three national economies — the United States, China and Japan — are facing elections or important changes of leadership while the European Union, which counts as the biggest economy and trading power in the world if you can believe in its existence as an entity, lurches from crisis to crisis.

Wherever you look, growth is slowing, unemployment is rising, glaring gaps between rich and poor are straining social fabrics, and debts and deficits threaten the U.S. and much of the developed world.

Olivier Blanchard, the chief economist of the IMF, put matters into grim perspective when he warned that the Eurozone crisis, debt problems in the U.S. and Japan, and China's slowdown meant that it would be at least 2018 before the world economy would be in good shape. "It's not yet a lost decade," declared Blanchard, "but it will surely take at least a decade for the world economy to get back to decent shape."

Most leaders have reacted to their problems with a mixture of palliatives and temporary measures. They have not yet grasped the full extent of the problems, let alone started to tackle them. One of the more interesting economic bloggers, Fabius Maximus, says, "Almost nothing is happening in the global economy. All the Sturm und Drang in the news media is exaggerated."

The OECD's composite Leading Indicators, one of the most reliable indicators, shows a flat global economy, a peak of 101.1 in February 2011, a trough of 100 in October 2011, and 100.2 in July, the latest. Europe is in "slow decline cohesively." Fabius Maximus says that the greatly heralded new policies of the European Central Bank and of the U.S. Federal Reserve are "not game changers."

But a new element threatening to disturb the global economy is that, "China's massive current account surplus, fed by buying (U.S.) treasuries, gold, etc., might be vanishing now. It's one aspect of a China bust. If this continues as some forecast, it will change the world."

The continuing vicious spat between the world's second and third biggest economies over tiny uninhabited islands in the seas between China and Japan also shows the depressing lack of political wisdom, let alone courage, in tackling troubling issues. China's leading state-owned banks have already petulantly said they will stay away from the Tokyo IMF meeting, although the finance minister is expected to attend. However, that is without maverick nationalist Tokyo Gov. Shintaro Ishihara's attempt to stoke the fires with his plans to build structures on the Senkakus to demonstrate Japan's control of them.

China is undergoing the final throes of its political changing of the guard, which will see a new president and prime minister and politburo standing committee members formally announced next month to lead the country for the next decade. In spite of the best efforts, it has not been a smooth transition, and the trial of former leader Bo Xilai has yet to start. China is not in a position to offer any leadership in Tokyo.

In Japan, one has to ask, who is the finance minister? Yes, his name is Koriki Jojima, the sixth minister in three years, but he has no financial track record, no demonstrated ability to offer leadership or play host to a global meeting, let alone the ability to offer bright new ideas for a global economy in crisis.

But then Japan itself has its own economic crisis. Jojima's predecessor Jun Azumi hardly distinguished himself, apart from frequently threatening that speculators against the yen would have to pay. His threats were as if he was yelling to the tide not to come in. The yen is trading at 77-78 against the dollar, below the peak of 75 but far higher than the 85-90 that Japanese exporters would be comfortable with and which some currency experts predicted that the yen would fall to. But the longer problems in the U.S. and Europe linger, the more the yen is a "safe haven" currency, even though Japanese growth is faltering, government debts are growing and the population is declining and aging.

Never mind, Prime Minister Yoshihiko Noda and Jojima may not have long left in office. The problem then will be the prospect of a more nationalist government bent on restoring the country's former greatness under a cash-strapped economy, complicated arithmetic indeed.

Japan is not alone in its failure to display economic leadership or even wisdom. The U.S. dances along the "fiscal cliff" blithely unaware how the ground is crumbling underneath it. The world should also be trembling if leaders in the White House and congress cannot get their act together and fall off the cliff edge, which would send the U.S. into recession and exacerbate global economic problems. It is worrying that the U.S. has nothing to bring to the Tokyo party; what is worse is that Republican and Democratic contestants are fighting viciously from behind tribal ramparts with little thought of a national solution.

It is hard to find any economic or finance minister who have any inkling of how a global economic solution might work. From China to India and right across Europe, governments are finding it hard enough to devise solutions for their own immediate economic and financial crises, let alone think of the world or of the day after tomorrow.

Christine Lagarde, former finance minister of France and now managing director of the International Monetary Fund, has been trying to use the bully pulpit. Interviewed by her own "IMF Survey" magazine, Lagarde declared: "It's a question of really trying to get beyond the crisis in the eurozone, asserting a medium-term plan for countries like the United States and Japan." She added that, "It's obvious that it will take a lot of cooperative action between all players — and not just cooperative talk, but cooperative action by way of implementing some of the decisions that have been made and some of the decisions that need to be made."

To which the response must be: words, words, words, mere words. Lagarde's high hopes betray a yawning distance from the hard facts, which makes one wonder about her political skills.

Across the street from the IMF above the soaring glass atrium of the World Bank, it is hard to know yet whether President Barack Obama — with the cowardly acquiescence of the rest of the world — made a disastrous choice of Jim Yong Kim as the institution's president because Kim has been virtually invisible from the public gaze. The IMF has taken a role as the financial firefighter, but the World Bank should be playing a greater role as the leader of longer-term development plans for the poorest people in the world whose lives will be greatly damaged if the IMF cannot prompt the rich countries to sort out their problems.

Finally, recently, Kim put his head above the parapet to promise changes in the way the World Bank was run. Disappointingly, he did not say what they would be or even when he would formulate them. "We're not ready to ask for specific changes yet ... but if we are to be really serious about ending poverty earlier than currently projected ... there are going to have to be some changes in the way we run the institution," Reuters quoted him as saying. So more continuing enigma than leader there. He added that he wants the bank to be less focused on making big development loans and more on making a difference on the ground — but that has been an aspiration of almost every World Bank president since Robert McNamara (who took over in 1968).

Pascal Lamy, the head of the World Trade Organization has been refreshingly vigorous in pleading for opening of the doors to freer trade, but it is depressingly clear that the world's so-called economic leaders have stopped their ears. The WTO has no formal place in the Tokyo meetings.

The global economic situation is so precarious and the prospects for the Tokyo meetings are so grim that even Noda and Jojima should be wondering whether the extra income from full hotels is worth the cost of security for the VVIPs and whether they too should be saying, "Finance ministers, go home."

Kevin Rafferty is editor in chief of PlainWords Media.


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