Japan, China Offer Large Financial Aid Packages
Asia's two largest economies offered landmark financial support to needy nations: Japan's prime minister promised $100 billion in loans to boost the resources of the International Monetary Fund early Friday, and Pakistan officials said Thursday that China had offered it a $500 million aid package.
Japan's move, announced by Prime Minister Taro Aso in a column in The Wall Street Journal's Asian edition on Friday, significantly boosts the IMF's funding capacity, nowatabout $250 billion. Mr. Aso didn't place any conditions on making the new funds available, but called for other nations with large cash reserves to offer more aid of their own, and for the IMF's member nations to increase its overall capital. 'Japan is prepared to lend up to $100 billion to the Fund as an interim measure,' he wrote.
The only country with a larger foreign-currency reserve than Japan is China, with nearly $2 trillion. Its much smaller donation -- announced Thursday by Pakistan but not immediately confirmed by Beijing -- is symbolically important because it suggests China taking a stronger economc role internationally.
But it is unclear how far Beijing is ready to expand that role. Chinese officials have played down expectations of any major infusions worldwide, saying their focus is on protecting their domestic economy, itself increasingly important to the world's financial health.
Both moves came just ahead of a Group of 20 summit in Washington on Friday and Saturday, bringing together leaders from 20 of the world's biggest developed and developing economies to discuss ways to tackle the global financial crisis.
The summit 'will not be about whether China will spend money to bail out' other countries or financial institutions, He Yafei, vice minister of foreign affairs, told reporters last week. He didn't rule out a funding commitment, but said that Chinese officials expect to press issues that will improve 'fairness' in the global financial system for developing nations and improve international financial regulation. By contrast, Japan's offer to the IMF, which Mr. Aso will present at the G-20 meeting, is part of Tokyo's effort to play a major role in tackling the global crisis. Japan, the world's second-largest economy, sees the crisis as an opportunity to assert a leadership role. Though the country faces the propect of recession, its financial companies have largely avoided huge losses that are now dragging down many of their counterparts in the U.S. and Europe.
Tokyo also believes it has the knowledge and expertise in solving a financial crisis because of its own experience in battling a bad-loan crisis at its banks in the late 1990s and early 2000s.
Officials in Tokyo have previously said Japan, which has nearly $1 trillion in foreign-currency reserves, would be ready to provide funds to the IMF if it needs more money for rescue packages. But they had previously not given an amount.
Extra funds by Japan, and possibly others, would give the Washington-based lender more muscle and flexibility if the global economic turmoil deepens and more nations find themselves in need of emergency funding. In recent weeks, the IMF has dipped into its pool of funds to make loans to Iceland, Hungary and Ukraine worth more than $30 billion, and is in talks with other countries including Pakistan.
Providing money for a global bailout plan would help end a longstanding debate over how Japan should put its huge foreign reserves to use. Some politicians have criticized the government for failing to invest the funds more aggressively.
The contribution to Pakistan by China was announced by Shaukat Tarin, economic adviser to Pakistan's prime minister and the nation's de facto finance minister. It comes as Pakistan is finalizing aid negotiations with the IMF. Pakistan is struggling with an acute balance-of-payments crisis and the government estimates the country needs about $4 billion to pay for its imports and help repay its debt. A Finance Ministry official said the country is likely to receive the financial package from China in the next two or three days.
Pakistan's foreign reserves have been dwindling from a high of $16.39 billion in November 2007 as foreign investors pull out funds and the country's oil-import bill balloons. According to the latest data available, the country's foreign-exchange reserves plunged to $6.76 billion for the week ended Nov. 1.
Investors have been spooked by the country's political volatility and by the Islamist insurgency. Pakistan and the IMF are discussing a $9.6 billion, two-year standby arrangement that Pakistani officials expect to be concluded in the next week.
Pakistan's government hopes agreements with the IMF and China will unlock lending from other lenders, such as the U.K. and the U.S. |
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