No. 9 — March 3, 2000


Weekly Review

--- by Marc Castellano

With the global search languishing for a new managing director of the International Monetary Fund, Tokyo formally named former Vice Finance Minister for International Affairs Eisuke Sakakibara as its candidate. The February 23 move was not entirely unexpected, but it still raised eyebrows in Western capitals. The top IMF job, vacated by Frenchman Michel Camdessus earlier in February, traditionally is reserved for a European.

However, because the European Union did not formally endorse a candidate until the end of February, the selection process is turning out to be unusually protracted and even somewhat ugly. Washington immediately rejected the EU nominee, German Deputy Finance Minister Caio Koch-Weser. Although he spent more than 25 years at the World Bank, Mr. Koch-Weser's lack of macroeconomic experience as a finance minister or a central bank governor and absence of political clout have cast doubts on his ability to handle the demands of the IMF managing director job.

The change in leadership comes at a critical time for the organization, which has been under fire for its response to the East Asian financial and economic crisis and for its broader, more controversial role as the custodian of the global financial system. The IMF's main mission — to provide economic advice and loans to countries in financial trouble — has become a subject of debate among international policymakers still struggling to devise ways to improve the so-called global financial architecture and the institutions that help define it.

Calls for major reforms of the IMF's operations have come from the organization's longtime opponents as well as from such traditionally strong supporters as Secretary of the Treasury Lawrence Summers, who last December proposed a wholesale restructuring of the international lending body (see JEI Report No. 1B, January 7, 2000). Mr. Summers recommended that the IMF scale back and reinvent itself. Specifically, he said, the multinational financial institution should focus on providing short-term assistance to combat financial crises, significantly reduce its long-term lending programs and promote the flow of information from governments to markets and investors.

Not surprisingly, Tokyo has different ideas about the nature of any IMF reform effort. Finance Minister Kiichi Miyazawa opposes the notion of limiting the IMF's lending activities to emergency loans. Parliamentary Vice Finance Minister Yoshimasa Hayashi has advocated changes that would enable the IMF to more effectively prevent currency crises. These new directions would involve continuing long-term lending to assist balance-of-payments adjustment and to backstop structural reform in emerging economies.

The new head of the IMF, of course, not only will be charged with policy formulation but also will be responsible for implementing any reforms. The fund's acting managing director, Stanley Fischer, has been nominated for the post by a coalition of African nations. But even Mr. Fischer holds views that contrast with Washington's, making him a less-than-ideal candidate in certain quarters, although in his job as the IMF's number two, he won many kudos for his efforts to get stumbling East Asian economies back on their feet. Mr. Fischer, a naturalized U.S. citizen and the former head of the Massachusetts Institute of Technology's economics department, opposes limits on the IMF's role and contends that the many functions the organization performs outside of crisis lending — for example, economic surveillance and technical assistance — are valuable to promoting good economic and financial policies and therefore should not be eliminated.

Despite the fact that no candidate has secured the informal backing of the IMF's decisionmaking Executive Board, Mr. Sakakibara's chances for success remain decidedly slim. The former Ministry of Finance official, known during his tenure as "Mr. Yen" for his reputed ability to influence foreign exchange markets, now is a professor at Tokyo's Keio University. Although he has what would seem to be the basic credentials for the IMF position — a high-profile public service record in the appropriate field, the right educational background and the ability to speak English — he lacks the necessary political influence. Perhaps more importantly, Mr. Sakakibara was a vocal critic of the IMF during the 1997-99 East Asian crisis. He also has been outspoken on the subject of freewheeling capitalism, suggesting that completely open markets are inherently unstable. In contrast, the United States, the IMF's biggest shareholder and its most influential single member, generally favors minimal intervention in international markets. Significantly, Japan has failed to win strong support for Mr. Sakakibara's candidacy, even from other countries in Asia.

Nevertheless, Tokyo is serious about this endeavor. According to the official IMF nomination statement, "Japan considers Mr. Sakakibara would be the most qualified leader of the IMF, especially during the period of its reform." Administrative Vice Finance Minister Nobuaki Usui, MOF's top bureaucrat, indicated that the government hopes to build as much support as possible for its long-shot candidate. On nomination, Mr. Sakakibara promised to do his best if selected, but he has offered few public comments about his candidacy. Such reticence may be due in part to the fact that his chances for success are remote — a reality acknowledged even by his Japanese promoters.

Tokyo's main objective, however, may not necessarily be to get Mr. Sakakibara into the top IMF post. Japanese officials have indicated that the effort is designed to convey the message that an Asian may be as qualified as a European (or an American) to do the job. Moreover, the Sakakibara nomination is both a symbolic protest against the Western-dominated establishment and an attempt to call attention to Japan's aspirations for a bigger role in international financial policymaking.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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