Press Conference by Yoshimi Watanabe,Minister for Financial Services
June 15, 2008, at Shangri-La Hotel, Kuala Lumpur
[Opening Remarks by Minister Watanabe]
I was invited to the conference of the World Economic Forum, and attended for the first time since January.
My impression is that the tone of debate about various issues has changed since then. For example, the previously unfriendly stance toward sovereign wealth funds has altered significantly. Also, the perception about Japan has changed. Six months ago, Japan was regarded as being incapable of carrying out reforms. Now, however, the view is gradually growing that Japan is doing fairly well.
Unfortunately, the condition of the global economy has become increasingly serious over the past six months. The financial markets and the dollar regime are examples of areas facing difficulty, and problems deriving from these areas, such as the surge in energy and food prices, have directly hit developing countries. I have been keenly reminded of the seriousness of these problems. I feel a strong need to establish a framework for restoring stability to the financial system.
[Questions and Answers]
Could you give me some specific ideas of the framework for restoring stability to the financial markets that you mentioned?
I think that we have two tasks, one for immediate action and the other for medium- to long-term action. The immediate issue is that a dollar crisis would not be good for Japan. It is in Japan's national interests to avoid a dollar crisis. Meanwhile, a multi-polarization of the world will be inevitable in the medium to long term. Therefore, we will need a framework for maintaining the “ecology system” of the global economy without succumbing to the temptation of protectionism amid the ongoing multi-polarization.
Would that require the establishment of a new international organization?
There would be a variety of options. Among such options are a framework for turning the Pacific Ocean into an “inland sea” like the Mediterranean Sea, which Prime Minister Fukuda has advocated, an East Asian Community, which has already been proposed, the ASEAN plus 3 (Association of Southeast Asian Nations plus Japan, China and the Republic of Korea), and the ASEAN plus 6 (ASEAN plus Japan, China, the Republic of Korea, Australia, New Zealand and India).
Could you tell me about your one-on-one meetings with senior foreign officials?
First, I talked with the Vietnamese Minister of Finance (Ninh) over lunch, and we had a frank exchange of opinions about the kinds of issues that were taken up in a speech (by Minister Ninh). Vietnam is in a very difficult situation: having maintained high growth until recently, it is now experiencing an inflation rate of as much as 25%, mainly because of the surging food prices. Although I suppose that Vietnam, which is an oil-producing country, is enjoying some benefits (from the oil price surge), it represents a typical case where the food price surge has resulted in inflation as a symbolic phenomenon. This case also prompts thinking about the framework of the World Trade Organization. In addition, I have realized Vietnam's difficulty in managing monetary policy in order to contain inflation. As its inflation stems mainly from the surging food prices, raising interest rates is not particularly effective. Rather, an interest rate hike risks producing adverse side effects, putting Vietnam in a serious dilemma.
With Indonesian Minister of Trade Pangetsu, I discussed the Japan-Indonesia EPA (economic partnership agreement). I explained that the Diet approval of the EPA, which came after some delays, had saved me face, as someone who has long maintained close relations with Indonesia. We also had a frank exchange of views about direct investment by Japanese companies. I have realized that Indonesia is also suffering from the surge in the prices of primary goods, which is dragging down its economy.
What did you discuss about Islamic finance with Governor Zeti?
I asked her some questions, because Malaysia has know-how about Islamic finance. I also explained cases in which Japanese companies have issued ringgit-denominated Sukuk. Governor Zeti stressed the strong advantage of Malaysia's Sukuk market compared with the markets in other countries. She said that the Sukuk market is well-established, although securitization is not conducted in Malaysia, as the country is founded on a tangible economy.
After the series of meetings this time, will you continue discussions about a framework for cooperation with these officials?
I met with the Vietnamese Minister of Finance last year, too. Although this was the first occasion for me to meet with the other officials, I would like to do so again when there is an opportunity.
The lifting of the ban on Islamic finance will allow Japanese banks to enter a variety of business fields. How do you want them to take advantage of the lifting of the ban? Is there any broad trend that you want them to ride on, other than the issuance of Sukuk by Japanese companies?
Know-how about Islamic finance has been accumulated. Islamic finance is significant in that it provides opportunities for financial businesses that differ from those in developed countries.
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