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Saturday, 28 September, 2002, 16:41 GMT 17:41 UK
Japan's reforms puzzle US
US Treasury Secretary Paul O'Neill
O'Neill says Japan's plans will not work

US Treasury Secretary Paul O'Neill has said he does not see how Japan's proposed remedies for its ailing economy are likely to work.

"I did not come away with an understanding of how these particular interventions are going to contribute to a change," he said on Saturday before a meeting of finance ministers.

Mr O'Neill was responding to a proposal first put forth last week by Japanese economy minister Masajuro Shiokawa for Japan's central bank to buy stocks from banks to stabilise Japan's financial sector and its stock market.

The net economic effect of transferring ownership from one entity to another is zero, the US treasury secretary said.

In meetings with Japanese officials on Friday, during a Group of Seven (G7) conference, Mr O'Neill said it was not clear to him how transferring funds and other proposals would enliven Japan's recession-plagued economy.

'Public money?'

"There a presumption... that there's a difference between the Bank of Japan money and public money," the treasury secretary said on Saturday.

"Where do you think the Bank of Japan gets its money," he asked reporters. "Is it not public money?"

Transforming Afghanistan into a modern state with the necessary institutions of government and society is one of the largest leadership challenges of our time

Paul O'Neill
Japan's economy is locked in a decade-long recession continually dragged down by the inability of its banks to deal with billions of dollars in bad loans.

Mr O'Neill said the proposals set forth by Japanese leaders will not in themselves lead to economic growth.

In its latest World Economic Outlook, released on Wednesday, the IMF said it expects Japan's economy to contract this year by 0.5% but return to very modest growth in 2003.

Exploring options

In addition to Japan's economic ills, Mr O'Neill spent considerable time discussing the plight of world's poor.

He said human beings should not be the victims of faulty national and global economic systems.

The tools of the Bretton Woods institutions, as the IMF and World Bank are known, provide only bad solutions when a country descends into financial crisis, he said.

One of the reasons nations have suffered over the last three or four decades is the IMF and World Bank are basically limited to sending money or not sending money.

"We must explore every possible option to improve the current system so that nations can resolve debt crises and return to growth," he said.

Promoting growth

Mr O'Neill also told reporters that he was "particularly pleased" by a commitment made by his G7 colleagues to meet their obligations in rebuilding Afghanistan.

"Transforming Afghanistan into a modern state with the necessary institutions of government and society is one of the largest leadership challenges of our time," he said in a prepared statement.

Mr O'Neill and other finance ministers are gathered in Washington for the annual meetings of the International Monetary Fund (IMF) and the World Bank.

Leaders of both organisations continued to stress the need for industrialised nations to help developing countries enter the global market place.

This year's meetings have been greeted with another round of demonstrations by anti-capitalist protestors, who have taken to the streets to denounce IMF and World Bank policies.

Among a bevy of concerns voiced by activists are the consequences to the environment caused by funding of road- and dam-building in developing nations.



Developing countries

World economy
See also:

28 Sep 02 | Americas
25 Sep 02 | Business
23 Sep 02 | Business
19 Sep 02 | Business
24 Sep 02 | Business
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