Japan to offer billions to emerging economies

November 13, 2008
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, TOKYO, November 13 – Japan is ready to lend 100 billion dollars to help emerging nations battered by the financial crisis, reports said Thursday, as a central banker warned Asia\’s largest economy also faces a long slump.

Prime Minister Taro Aso will announce the plan at a summit on the financial crisis this weekend in Washington that will bring together leaders of the Group of 20 industrialised and emerging countries, Japanese media reported.

Japan is willing to lend up to about 10 percent of its 980-billion-dollar foreign exchange reserves to the International Monetary Fund, which counts on Tokyo as its second-largest donor, the Nikkei business daily reported.

It said Japan would offer to lend the reserves in the form of US Treasuries which the IMF could use as collateral to raise money should it experience a shortage of funds.

Finance Minister Shoichi Nakagawa said the government was still finalising its plans.

But not everyone is happy about the prospect of Japan lending so much money to ease the global slump — and boost its clout — at a time when its own economy is facing a likely recession.

"Of course, it is important to save emerging economies, but how about our own country? We would be much happier if the same amount was earmarked for us," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

"Although Japan is not seeking to have fun poked at it as the \’world\’s wallet,\’ this sort of action will only renew the joke," he said.

Japan\’s economy shrank in the second quarter of this year and there are increasing fears that it is set for a long downturn.

The Tokyo stock market has lost almost half its value this year. The Nikkei dropped 5.25 percent on Thursday after the US government scrapped a plan to buy toxic mortgage debts.

The Japanese economy, the second-biggest in the world, faces an extended slump because of the global financial crisis, a member of the central bank\’s interest rate-setting committee warned.

The financial crisis is curbing economic growth, "putting the Japanese economy on the brink of a long-term adjustment phase," Bank of Japan policy board member Seiji Nakamura said in a speech in southwestern Japan.

The Bank of Japan last month cut its super-low interest rates for the first time in seven years, joining central banks around the world fighting the worst financial crisis in decades by reducing the cost of borrowing.

Aso has said he wants to play a leading role in the G20 summit, sharing Japan\’s experience in beating its own banking sector crisis and economic implosion in the 1990s.

Tokyo is the second-largest donor after Washington to many global institutions, including the IMF, but its attempts to raise its voice on the world stage have often ended in failure.

"Aso can always offer money. That is what probably everybody else wants him to do," said Noriko Hama, a professor at Doshisha University in Kyoto.

"This is potentially a great time for Japanese diplomacy. But the Japanese are notoriously bad at making the most of these kind of opportunities. They trip up in front of the goal posts," she said.

At the Washington summit, Japan also plans to call on other countries with ample foreign exchange reserves, such as China and Middle Eastern oil-producing nations, to provide funds, the Nikkei said.

The IMF has about 200 billion dollars in surplus funds but it is scrambling to bolster its finances because it is expected to make several large loans to countries such as Iceland, Serbia and Ukraine, it noted.

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