masaru hayami : the role of japan amid the changing international financial environment speech by mr masaru hayami, governor of the bank of japan, at the executive board of directors ’ meeting of the japan foreign trade council, held in tokyo, on 7 june 2000. * 1. * * introduction thank you for inviting me to the 263rd executive board of directors ’ meeting. it is a great pleasure to have this opportunity to address such a distinguished audience. it also brings back memories of my days as one of the council ’ s executive directors and vice chairman under chairman mimura. your invitation today allows me to be here again, for the first time in almost ten years since i left the council to become chairman of the japan association of corporate executives. knowing that many of you come from trading companies which are active globally, today i ’ d like to share my ideas from the viewpoint of the role of japan amid the changing international financial environment. 2. tensions generated by globalization having previously worked for the bank of japan for 34 years, i had a chance to work in the then foreign department, our london office and other positions related to the bank ’ s international activities. it was a great experience for me to attend important international meetings such as the bis and the then g5 meetings. then, two years ago, i returned to the bank of japan as governor. now, representing the bank, i have a chance to again take part in various international meetings. attending such meetings, i have noticed two things. first, the number of international meetings has multiplied over the years. in this context, of particular note is that the presence of emerging - market countries, particularly the asian economies, has also increased. one reason for this is somewhat paradoxical in that since the asian currency crises of 1997, there is a consensus that the economic and financial stability of emerging - market economies is crucial for global economic and financial stability. indeed, the rise in the number of international meetings and participants evidences the extent to which economies are becoming globalized. the second thing i have noticed is that various kinds of tensions have arisen as the market economy has become more globalized. i clearly recall ngo activists surrounding the wto ’ s ministerial conference in seattle last december. the imfc meeting, which i attended in late april on the day after the g7 meeting, was also the target of similar protests. how can it be that the imf, a pivotal contributor to the development of the liberalized market economy after

the second world war, and the wto, a legitimate successor to gatt, have become the targets of such protests? perhaps the phenomenon can be seen as a typical example of increased tension between those who have ridden the tide of the market - oriented economy and those who have grave concerns about global environmental issues and widening gaps among regions which are possibly caused by rapid global developments. i think many agree that the world economy is currently in the midst of one of its most important turning points since the industrial revolution of the 19th century. ongoing globalization and computerization are mega trends which will continue well into the future. in this context, competition at the global level is expected to intensify. it is global competition which is the principal driving force behind economic dynamism. no one can stop this trend and we should react positively. however, we cannot deny the fact that newly formed tensions and uncertainties have emerged. therefore, we should continue to look for ways to promote the sound and stable development of the world economy through steady efforts to establish appropriate rules and regulations that are compatible with the new trends. one thing is certain, such efforts will be accompanied by difficulties, involving some disagreements on the international front, and it is incumbent upon us to try to find solutions. 3. meaning of imf reform against the background of such trends, the international monetary and financial system is burdened with further responsibilities. in particular, the asian currency crises brought to the fore various issues of concern to international financial circles including the prevention and resolution of future currency crises. and, the outcome of discussions constitutes part of the concept of the so - called “ new financial architecture ”. the financial stability forum, which was inaugurated last april at the request of the g7, has published recommendations on such issues as highly leveraged financial institutions ( for example, hedge funds ) and international capital flows. this is one example of the fruit of work undertaken by international financial fora. the reform of the imf has been a most important issue. and it was also the asian currency crises that triggered intense debate about the necessity of such reform. the asian currency crises that broke out as the result of the rapid outflow of short - term capital are called “ 21st century - type crises ”. here, the imf has come to be the target of criticism which holds that imf should improve its surveillance ability and increase transparency of its policy - making processes because it has not sufficiently carried out its mission of crisis prevention and resolution. i personally think