(Check against Delivery)
Special Address by H.E. Mr. Taro Aso, Prime Minister of Japan
On the Occasion of the Annual Meeting of the World Economic Forum
"My Prescriptions for Reviving the World Economy"
Congress Center, Davos, Switzerland
January 31, 2009
Founder and Executive Chairman Professor Schwab,
Ladies and gentlemen,
The world economy is now facing a crisis that is said to occur only once a century. Today, I wish to share with you my thoughts on what the world should do, and the role of Japan within that context.
I have a strong conviction：the pursuit of economic prosperity and democracy will lead to peace and happiness. (: Peace and Happiness through Economic Prosperity and Democracy). This is the path that Japan has been following since the end of World War II. Economic prosperity gives rise to a new middle class, which then desires still greater freedom, democracy, and peace. Many countries in Asia have also walked down this path. What then happened was the tremendous economic growth and expansion of democracy, although the degree of the latter varies from country to country. I take pride in the fact that by supporting the efforts of Asian countries, Japan played a significant role in this turn of events. As a result of these successful experiences, what became the backbone of Japan's foreign policy was the belief that "the pursuit of economic prosperity and democracy will lead to peace and happiness".
Two years ago when I was serving as foreign minister, I articulated the concept of the "Arc of Freedom and Prosperity." This too clearly illustrates Japan's determination to support the efforts of countries aspiring to market economies and democracy, and to travel the road to prosperity together with those countries.
Ladies and gentlemen,
The First of My Prescriptions: Measures to Address the Financial Crisis
Economic prosperity is now confronted by challenges everywhere in the world. In the current financial crisis, it has become clear that there is tremendous room for improvement in the financial markets as markets.
The Summit on Financial Markets and the World Economy was held in Washington DC last November. Based on Japan's experiences, I advocated the necessity of expeditious disposal of financial institutions' non-performing loans and also of capital injections using public funds. In addition, I announced Japan's readiness to provide a loan equivalent of a maximum of US$100 billion to the International Monetary Fund (IMF), in the belief that it is imperative to ensure liquidity centered on the US dollar for middle-sized and small countries as well as emerging economies. I welcome oil-producing nations and countries with substantial foreign currency reserves to join in such efforts. I strongly believe so even now.
The Second of My Prescriptions: Making Efforts to Fortify the Health and Strength of the World Economy
Yet, in addition to these types of what we might call "emergency first aid," it is also necessary to build up the health of the economy and fortify its strength.
Reformulation of Market Rules
First of all, the reformulation of market rules. This is also an effort to restore economic rationality with a balance between competition and regulation. I have been calling for some time for the introduction of a supervisory system for financial markets, regulation of credit rating agencies and clarification of the mark-to-market accounting standards to be used during times of high market volatility. As we head towards the Summit on Financial Markets and the World Economy to be held in London in April, it is important that there be steady implementation of the agreed Action Plan, including these points.
Avoiding a Retreat into Protectionism
At the same time, a major precondition for overcoming the crisis is that the flow of trade and investment not be inhibited. Japan's exporting companies are also mired in extremely severe economic circumstances. However, in keeping with the lessons of the 1929 Great Depression, we will resolutely fight all protectionism. We will also act in cooperation with other countries towards the early conclusion of the World Trade Organization (WTO) Doha Round negotiations.
Remedying the Global Imbalance and Expanding Internal Demand
Next I would like to address remedying the global imbalance. Our real economies have been suffering significantly. In order to put the world economy back onto a stable growth trajectory, one imperative is correcting the global imbalance that has arisen from overconsumption in the United States and insufficient internal demand in other countries, especially countries with overall balance surpluses. Countries must shed their dependence on external demand. Over the last year and a half, the yen has gained the most value among all major currencies. Each country needs to enhance internal demand and achieve self-sustaining growth, in keeping with their individual circumstances. I feel keenly that the restoration of vitality to the Japanese economy, the second-largest in the world, is Japan's foremost duty.
Japan's Economic Countermeasures
Towards that end, I have decided on an economic stimulus package on a scale of approximately 75 trillion yen (US$840 billion equivalent). Our fiscal measures alone total some 12 trillion yen (US$135 billion equivalent), corresponding to approximately 2% of Japan's GDP. In situations in which private sector funds do not shift into investment in equipment despite reduced interest rates at almost 0%, fiscal stimuli from the government are necessary. This is the lesson we learned from the Asian currency crisis in the 1990s. Aberrational economic circumstances call for exceptional responses. That is Japan's experience from the 1990's.
The Asian Economy
It is Asia that holds the greatest potential of anywhere in the world with about 40% of the world's population and an average economic growth rate of roughly 4% in recent years. It is important for this region to contribute to the world economy as a center of growth open to the world. I have already incorporated funding of 10 billion yen (approximately US$100 million) into our supplementary budget as emergency assistance to Asia. Furthermore, it will be necessary to strengthen regional cooperation towards strengthening Asia's growth potential and expanding domestic demand.
For example, Japan has been proactively participating in sub-region-wide developments, such as Mekong region development or the Delhi-Mumbai Industrial Corridor including the construction of railways in India. In addition, toward the upcoming East Asia Summit, Japan will consider various concrete measures together with Asian countries, including utilization of the Economic Research Institute for ASEAN and East Asia (ERIA). Needless to say, Japan will support Asian countries by mobilizing funds ranging from Official Development Assistance (ODA), Other Official Flows (OOF) to private capital. For that purpose, Japan is ready to provide ODA not less than 1.5 trillion yen in total (US$17 billion equivalent).
Meanwhile, in Asia, there has been progress in the strengthening of the Chiang Mai Initiative, a regional financial cooperation initiative. In addition, last December Japan hosted the Japan-China-Republic of Korea (ROK) Trilateral Summit Meeting, which was held independently of other meetings for the first time. The combined economies of Japan, China, and the ROK, at 15.9% of the total global GDP, exceed the combined figure of Germany, the UK, and France. This trilateral summit will be held on a regular basis, with strengthening of future trilateral cooperation to be advanced directly by the leaders. This is a historic first step, and I am firmly convinced that a deepening of Asia's regional cooperation such as this will also lead to the recovery of the world economy in due course.
African countries are experiencing severe impacts as a result of the sharp drop in resource prices. It is important for the international community to address humanitarian issues through development assistance and take measures that will further attract private capital to Africa. Last year Japan hosted the fourth Tokyo International Conference on African Development (TICAD IV) and announced various initiatives, including doubling Japan's ODA for Africa by 2012 and providing support for doubling private investment to Africa. Japan will faithfully fulfill these commitments. This March Japan will be convening the TICAD Ministerial Follow-up Meeting, in which we will put the voices of Africa together with a view to presenting these voices to the Second Summit on Financial Markets and the World Economy in April.
The Middle East
Stability of the Middle East is also essential for sustained global prosperity.
Security measures and reconstruction assistance are like two sides of the same coin. In addition to our Maritime Self-Defense Force's replenishment support activities in the Indian Ocean, Japan will dispatch Self-Defense Force vessels off Somalia as a countermeasure against piracy. Furthermore, Japan has great expertise in improving people's livelihoods. I would like to introduce to you two examples of Japan's work in this area.
In Afghanistan, Japan's assistance has made remarkable achievements; Japan brought to success the disarmament and reintegration of some 60 thousand former combatants; provided polio and BCG vaccines for a total of 40 million people; constructed 50 clinics; constructed or restored more than 500 schools; trained more than 10 thousand teachers; and provided literacy education to some 300 thousand people. Japan will continue these kinds of support drawing on Japan's special attributes.
In the Gaza Strip of the Palestinian territories, there have been a large number of civilian casualties and the situation is one that cannot be ignored from a humanitarian perspective. Soon after hostilities broke out, Japan undertook emergency humanitarian relief on a scale of 10 million dollars, and on the 23rd of January we provided blankets and other types of stocked supplies. In addition to such kinds of humanitarian relief, Japan has been promoting the "Corridor for Peace and Prosperity" initiative as a longer-term effort, which includes building an agro-industrial park in Jericho in the West Bank area, with Israel, the Palestinian Authority and Jordan in order to enhance confidence-building among them and projects are now in progress. My dream is to see the fresh and green agro-park in Jericho fully in operation and exporting agricultural products in several years' time. This puts into practice my conviction that peace and happiness will come about through economic prosperity.
In order to tackle these issues that the international community faces, I have increased, since last year, our ODA volume, despite severe fiscal conditions, while in recent years our ODA volume had been decreasing. We will firmly maintain that direction in 2009 and we expect to increase our ODA volume by approximately 20% on a net basis. I have renewed my determination to respond towards this crisis said to occur only once in a century.
Ladies and gentlemen,
The Third of My Prescriptions: Actively Respond to Climate Change
I have just overviewed my plans to fortify our economic health and strength. In addition to these, we must not forget the issue of climate change. Climate change is a challenge, yet to tackle it is also an opportunity to create new industries. Japan, as the world's number one leader in energy efficiency, is a case in point. Over the last 30 years, we have doubled our real GDP without increasing the energy consumption of our industrial sector. Our primary energy consumption per unit of GDP stands at only one-half the average for OECD countries and less than one-third of the global average. Transforming the oil crisis into an opportunity has been part of Japan's history.
Initiatives of Developed Countries
Last year, as the chair of the G8 Summit, Japan demonstrated its leadership in shaping an agreement to reduce by 2050 global greenhouse gas emissions at least by half. This year is the year when we decide on concrete actions. If all countries do not share the burden equitably in keeping with their differentiated responsibilities, the problem will never be solved. Japan will also make greater efforts towards emission reductions. We are currently examining our mid-term target based on scientific analyses, considering the environment, the economy, and energy in an integrated manner, and I intend to announce the target by June. This target should not be a declaration without backing; I intend for this to be viable from an economic perspective and serve as a contribution to global warming countermeasures for the entire planet.
Responses to Developing Countries
I believe that developing countries can make the transition directly to "low-carbon societies" while maintaining high economic growth. The key is the bold introduction of advanced technologies in energy conservation and low-carbon energies. There are various such technologies and systems around the world. For those developing countries that intend to introduce such technologies and systems, Japan will also provide assistance including through financial support, based on the "Cool Earth Partnership" which Japan put forward last year.
Ladies and gentlemen,
Overcoming the Crisis and Moving On to a Better World
We must admit that the year 2009 opened on a very somber note. However, we must have the resiliency, toughness, and optimism in order to create a better world, turning this challenge into an opportunity.
What is this "better world" we seek?
First, it is a world in which each and every individual can develop his or her potential through his or her own efforts.
Second, it is a world that values diversity, including diversity of races, of ethnicities, and of religions.
Third, it is a world with a resurgence of economic rationality with a balance between competition and regulation.
Economic prosperity is the foundation for just such a better world.
Here at Davos gathered a great many leaders who are active across the entire spectrum of fields. And, in the United States, a new leader, President Obama, has just taken the stage. I intend to work in collaboration with these leaders in order to make this year the year of the world economic revival. The French philosopher Alain said, "Pessimism comes from our passions; optimism from the will." I would like to close my remarks today by reiterating my strong belief that with firm will any difficulties can be overcome.
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