Mr Yen confident of Asian rebound

May 4, 2000

EISUKE Sakakibara did not earn his nickname as Mr Yen for nothing. Not only is he very knowledgeable and influential in the international financial markets, but he is also witty and widely recognised as an intellectual heavyweight of modern Japan.

Until his retirement more than a year ago, Sakakibara was frequently heard on the financial markets talking the yen up or down. "But I mostly talked the yen down," he told Suthichai Yoon of the Nation Multimedia Group, his talkshow host, with a mischievous grin.

Sakakibara spoke impeccable English and mingled with global leaders during his distinguished career as one of the world's most influential men. Asked why he was see as powerful in the financial markets, Sakakibara said he did not know but since the market had this perception about him, he tried to act powerful.

His remarks at times upset the Americans or the Europeans, to the extent that he was seen as anti-American or anti-Western. But Sakakibara said he was only faithfully serving Japan's interests, which has become the world's number two economy.

In the financial markets, it is a zero-sum game: Either Japan wins or the financial markets lose out, or vice-versa.

At the special luncheon talk organised by the Nation Multimedia Group yesterday, Sakakibara, now professor at Keio University, offered his rich views as to how an emerging economy like Thailand should prepare itself to cope with a volatile world. He said Asia, including Japan, has failed to keep up with the global transformation from industrial capitalism to what he calls cyberspace capitalism, highlighted by real-time transactions across the globe.

"The process is irreversible and will probably accelerate dramatically in the coming years. Asian countries, including Japan and Thailand, need to structurally change their economies and societies to adapt to the new environment," he said.

But this transformation also comes with a negative side-effect. With the globalisation of the financial markets, the international economy has become extremely volatile and vulnerable to the boom-and-bust cycle.

To deal with this virtual reality, the emerging economies will need to protect themselves from the volatility by taming short-term capital flows, accelerate regional cooperation in finance, trade and services and embrace the information technology revolution to enhance productivity growth, he suggested.

Sakakibara believed that Asia will bounce back and catch up with the US in technology and innovations.

When would the US economic bubble go bust? Sakakibara said that at least over the next two years he would not expect to see a collapse in the US stock market.

The US economy, which is now growing at 5-6 per cent, would need to slow down to a soft landing.

He said the US monetary authorities would need to continue to raise the rates to bring the US growth to a more manageable level at 3-4 per cent.

As for Japan, Sakakibara said the economy there is recovering with a dramatic structural change. Japanese corporations will need to shake up their management, and give opportunities to the younger management to take over the reins.

His recommendation to the Japanese government is that it should further deregulate the telecommunications industry and the financial sector. This would create more competition and bring down the costs and thus benefit the overall economy.

Recently, Sakakibara was in the running for the post of managing director of the IMF, knowing that he did not have a chance.

But his candidacy succeeded in registering protest against the make-up of the IMF and the international financial system, which were tilted heavily towards the interests of Europe and the US.

The IMF was founded right after World War II when most Asian countries were still under colonial rule.

He said that if he were to be nominated as the IMF's managing director, he would try to reorganise the IMF by changing the quota at the IMF in a more equitable manner.

He said the IMF, which focuses mostly on macroeconomic activity, would also need to improve its understanding about the economic, social, political and cultural frameworks of the countries it is involved with.

He related a story that when Hubert Neiss, a former director of the IMF's Asia-Pacific Department, circulated a country report to his staff and erased the name of the country, the staff could not identify the country. For, the IMF staff did not have the understanding of the structure of the countries they worked on, except the broad macroeconomic figures.