Section 2. Contributions to a Harmonious Development of the World Economy
1. The world economy in 1974 was faced with a trilemma unprecedented in postwar history, namely, the simultaneous aggravation of inflation, a serious international payments imbalance which was accelerated by the sharp rise in oil prices, and a decline in economic growth. Although after the turn of 1975 there were some signs of improvement, the future still does not warrant any optimism.
These are not problems that can be solved by each country individually; their solution requires international cooperation. On Japan's part, it is necessary to take appropriate measures especially on those problems which are pressing, and also, in an intermediate and long-range perspective, to explore new paths to the restoration of stability in the world economic order.
Under these circumstances, Japan, which heavily depends on foreign countries for important resources and food supplies and as a major industrial nation exerts great influence on the world economy, must make active efforts through its bilateral as well as multilateral relations to achieve a harmonious development of the world economy while paying due attention to the need to coordinate its own national economy with that of the world.
2. Oil prices increased four times following the oil crisis in October 1973 and dealt a serious blow to the world economy.
The consuming countries held the Washington Energy Conference in February 1974. After several meetings of the Energy Coordinating Group established at the Conference, the International Energy Agency (IEA), having as its major objective the implementation of an emergency sharing scheme, was inaugurated in the middle of November within the framework of OECD. France did not participate in the IEA because of a difference of view on methodology although it recognized the need for cooperation among the consuming countries. Other major consuming countries through the IEA agreed to restrain demand, draw upon oil reserves and allocate supplies among members, in time of emergency.
At the Franco-American summit talks on Martinique Island in December 1974, the two countries agreed on the holding of a preparatory meeting of oil-producing and oil-consuming countries provided there was substantial progress in cooperation among the oil-consuming countries in three areas, namely, energy conservation, development of alternative energy sources and financial cooperation. Against that background, cooperation among the oil-consuming countries in these areas showed considerable progress.
In the meantime, the demand-supply condition in oil eased and there developed a downward trend in oil prices. As there occurred a delicate change in the power relationship between oil-producing and oil-consuming countries, the time became ripe for dialogue between them.
At the summit meeting in Algiers in March 1975, OPEC came to support, in principle, the holding of an international conference with the industrialized countries.
Since the Washington Energy Conference, Japan has actively taken part in cooperation among the oil-consuming countries, mainly through the IEA. It intends to promote such cooperation as much as possible with due consideration to its own energy situation.
Japan has hitherto firmly maintained the position that no country can solve the oil and energy problems alone, and that holding of a dialogue at an early date between the oil-producing and oil-consuming countries is essential for its solution. Japan intends to continue promoting cooperation with the oil-producing countries through its multilateral and bilateral relations. Although it has been decided to open a dialogue between the oil-producing and oil-consuming countries at a preparatory meeting proposed by France, it is likely that there will be many twists and turns before a full-scale dialogue with the oil-producing countries gets under way. Japan intends to pursue steadily the realization of a constructive dialogue.
3. The biggest problem in the financial and monetary field in 1974 was the recycling of the enormous amount of oil revenue surplus (so-called " oil money " ) accumulating in the oil-producing countries.
Various international proposals were made on this problem in 1974. As a result of the meeting of the Ministers of the Group of Ten and the IMF Interim Committee, both held in January 1975, the industrialized countries agreed in principle on a financial safety n=t among themselves, expansion of the IMF Oil Facility, and an increase in the IMF quota. Later, the OECD's ad hoc Working Party studied the proposal for a financial safety net and the agreement establishing the OECD Financial Support Fund was finally signed on April 9.
The Financial Support Fund can be regarded as having a mutual aid function, supplementing the existing system of international cooperation for preventing the world economy from falling into a crisis caused by unexpected movements in the industrialized countries' balance of payments. Of course, the Fund is not aimed at confrontation with the oil-producing countries; rather it is meant to constitute a part of the efforts to stabilize the world economy.
To recycle oil money, it is necessary to diversify the recycling channels in accordance with specific purposes and characteristics as well as to make such channels more effective.
4. In the field of trade, there was a trend in 1974 toward protectionism through import restrictions due to global "stagflation" and increased international payments difficulties. On the other hand, owing to the rise in resources nationalism , there developed among some resources-rich countries a tendency to restrict exports. With these trends as the background, OECD member countries adopted at the OECD Ministerial Council in May a declaration pledging efforts to avoid taking measures to restrict trade for one year. In June , the IMF's Committee of Twenty agreed that the countries concerned should refrain from taking similar restrictive measures for two years.
In January 1975, the long-pending U.S. Trade Bill was enacted, thereby paving the way for a new round of international trade negotiations (Multilateral Trade Negotiations) on a full scale. In light of the recent world economic situation, domestic and external factors that stand in the way of the Multilateral Trade Negotiations have increased. In this difficult situation, Japan, which as a matter of national policy, views trade as the cornerstone of its national existence, intends to make positive efforts in cooperation with other countries 'for the maintenance and strengthening of the principles of free trade.
5. The world's demand-supply condition in food began to improve for a while in 1973, following the tight situation in 1972, due to increased production by the principal producing countries. However, grain production in these countries in 1974 fell far short of original estimates due to bad weather while stocks in the United States and other major exporting countries had fallen to low levels. Therefore, the world's demand-supply situation in food still remained rather tight.
Against this background, the World Food Conference was held in November 1974 and discussed such problems as increasing food production in the developing countries, stockpiling, food aid, and a food information system, and examined institutional matters such as establishment of the International Agricultural Development Fund and the World Food Council and resolutions on these issues were adopted by consensus.
As an industrialized country, Japan is now in a position where it is called on to increase its assistance to the developing countries to help solve the food problem, and it will continue to increase its cooperation in agricultural development. At the same time, Japan as a major food importing country is inevitably concerned with the stabilization of the world demand-supply position in food. Thus, it intends to maintain and promote friendly relations with the major food exporting countries and at the same time will endeavor to have its position reflected in multi-lateral forums, such as the Multilateral Trade Negotiations and negotiations for commodity agreements for certain agricultural products.