Japan and the International Economic Institutions

International Financial Policy
The other important area in which Japan interacts with international economic institutions is in the finance and development area. (These two have to be discussed together if for no other reason than the IMF, the most prominent international financial institution, has evolved into an institution relevant mainly to developing countries. The debate over bilateral foreign assistance programs is beyond the scope of this paper, however.) In the finance and development sphere, a similar set of themes - disagreement over substantive and key leadership issues, and a possible Japanese and Asian desire to go their own ways - reoccurs. The focal points have been Japanese and Asian dissatisfaction over the performance of the US government and the IMF during the Asian financial crisis, subsequent debates over reform of what has come to be known as the international financial architecture, and proposals for regional initiatives that could run counter to policy emanating from Washington.16
Asian Regionalism
On the first point, Tokyo and Washington clearly reacted differently to the Asian crisis, reflecting differences in ideology, national interests, and perhaps understanding of the crisis. The US government initially underestimated the severity of the crisis, with President Clinton describing it as 'a glitch in the road' at the APEC summit in November 1997.17 Furthermore, relative to Japan, the United States was unsympathetic to the capital channeling and cronyism that had contributed to the crisis, and again, relative to Japan, US banks and financial institutions had less at stake in the region. Crudely put, the US government initially regarded the crisis as a modest regional affair, largely of the Asians' own making. Thailand was stunned by the initial US refusal to come to its financial assistance at the onset of the crisis and its refusal to participate in the 'second line of defense' associated with the initial IMF program.18 It was only after the crisis spread to South Korea and threatened to spread to Brazil and Russia that the United States was shaken out of its complacency.
Asian disappointment in US taciturnity was compounded by what are widely regarded as fundamental mistakes in the IMF programs, which actually exacerbated the crisis.19 These perceptions - that the United States was an unreliable ally, and that the economic prescriptions being written by Washington - at best incompetent and at worst malevolent, created an opportunity for Japanese leadership on regional financial issues, despite the fact that the yen depreciation of 1995-97 and the weakness of the Japanese banking sector contributed to the crisis in the first place.20 Japan proposed an Asian Monetary Fund (AMF), but the proposal was blocked by United States, IMF, and China, with Washington fearing that an AMF would degrade the global financial system by undercutting the IMF, while China opposed it out of geopolitical rivalry.21 (It did have the effect of spurring the US Treasury to redouble its efforts to secure an IMF quota increase, as discussed below.) Japan then came back with the 'New Miyazawa Initiative,' named for Finance Minister Kiichi Miyazawa, a $30-billion financial assistance plan for the region, consisting largely of sovereign debt guarantees, trade credits, and low-interest loans.22 Cynics claimed that this was simply a backdoor means of providing public funds to Japanese banks and corporations through their Asian subsidiaries and there is probably some truth to this. But whatever the motivation, Japan extended more official assistance to strapped economies in Asia than did the United States. At the same time, it should be noted that during 1998-99 exports from the most heavily affected Asian economies to the United States rose, while those to Japan fell. In essence, the United States enabled trade while Japan provided aid.23
After two years of dormancy, Japan's Ministry of Finance (MOF) resuscitated the AMF proposal in the spring of 2000 (Kuroda, 2000). The Japan-dominated Asian Development Bank (ADB) floated a report stressing the need to 'seriously consider' an AMF - a position from which it subsequently backed away.24 The problem was in some ways similar to the one that confronts Japan with respect to FTAs: it did not want to be perceived as originating the policy proposal, but rather as responding to the entreaties of others. In the case of the AMF, Japanese officials invariably described the AMF as an ASEAN and Japan proposal.25 ASEAN finance ministers did indeed consider the proposal in their meeting in Brunei in March 2000, but shelved it in favor of a less ambitious regional currency swap arrangement involving Japan, China, and South Korea, while agreeing to conduct 'a study on the modalities and mechanisms for a regional financing arrangement to supplement the existing international facilities.26
The countries of East Asia possess enormous foreign exchange reserves (on the order of $600 billion) and financing such an organization would be not be a problem, especially if Japan were willing to commit a significant amount of funding. Rather than resources, the real constraint in Japan may be political. Japan is a major source of saving for the region, and some in Japan would like it to play a greater role as an international center of financial intermediation. Yet despite the highly-touted 'Big Bang' financial market deregulation plan, the government has displayed ambivalence about undertaking the actions necessary to promote the internationalization of the yen. Even regionally, it is unclear whether Tokyo could ever play the roles that Hong Kong and Singapore play today and Shanghai may play some day in the distant future. Politically Japan remains fundamentally inwardly-oriented toward its domestic parochial political interests and financial markets and institutions, not toward global markets. As a consequence, it appears unwilling or unable to act in ways that would reassure non-Japanese institutions that it would play a responsible role as an efficient and unbiased regulator.