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Sugisaki lauds progress made on fortifying global financial system

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2004
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At the end of January, Shigemitsu Sugisaki departs as IMF Deputy Managing Director, a post he has held since 1997. Before that, he served as Special Advisor to the IMF Managing Director for 2½ years and held a variety of posts in the Japanese government, including Deputy Vice Minister of Finance for International Affairs in 1990-91 and Deputy Director General of the International Finance Bureau in 1991-92. Sugisaki spoke with Laura Wallace about his eventful years in top management at the IMF.

IMF Survey: What do you consider to be your greatest accomplishment?

Sugisaki: I prefer to focus on the accomplishments of the institution, which reflect the collective decisions of management and the Executive Board, and the work of the staff. From this perspective, I would highlight the efforts the IMF has made to improve the international financial architecture since Mexico’s financial crisis in the mid-1990s. Former IMF Managing Director Michel Camdessus called it the first crisis of the 21st century. By this, he meant that this was a balance sheet crisis, highlighting the importance of improving our analysis of the capital account and financial sector weaknesses. As a result, in 1999, he launched the Financial Sector Assessment Program [FSAP]—basically a health check of a country’s financial system. This concern was picked up by his successor, Horst Kohler, who created the IMF’s International Capital Markets Department, along with the Capital Markets Consultative Group, a forum for dialogue with private financial sector leaders. Over the years, we’ve also tried to strengthen crisis prevention and management efforts, but we still need to do more to sharpen our surveillance and ensure that programs are appropriately tailored to address individual crisis cases.

More personally, I’ve tried my best to ensure that the IMF continues to be a good place to work for our staff, as well as being fully responsive to the concerns and wishes of our shareholders, our member countries. It’s essential that we be able to recruit and retain top-quality staff. But we can’t be extravagant, and we have to stay in line with international standards on wages and benefits.

IMF Survey: How about your biggest disappointment?

Sugisaki: My biggest disappointment has probably been Zimbabwe. In 1999, I was closely involved in the IMF’s decision to support it with a successor Stand-By Arrangement. The previous loan had been approved only a year earlier and quickly went off track, in part because of the fallout from Zimbabwe’s involvement in the Democratic Republic of the Congo and a series of policy decisions that had undermined market confidence.

Against this background, our decision to support Zimbabwe with a successor loan was very much a leap of faith, based on the authorities’ commitment to corrective policies, including a major land reform. Already at the time, there was disquiet over the government’s issuance of acquisition orders to farmers who had contested the earlier compulsory purchases. Nonetheless, we decided to give the government the benefit of the doubt and go ahead.

This proved to be the wrong judgment. The program went off track after a single drawing, and the situation has continued to deteriorate, with great damage to Zimbabwe’s economy and the impoverishment of its people. Formal relations between the country and the IMF have also deteriorated. Zimbabwe has accumulated arrears, and, as a result, the IMF has initiated procedures for its compulsory withdrawal from the membership. It is still my hope that this can be avoided and that the situation can be turned around before too much more damage is done to Zimbabwe’s economy and the region. Whether things would have turned out any differently had we decided not to support Zimbabwe in 1999 is difficult to say, but it is a decision that I regret.

IMF Survey: You’ve been called upon to trouble-shoot in recent financial crises. Have we learned any critical lessons that will help us safeguard the stability of the international financial system?

Sugisaki: One lesson is that strong country ownership of an economic program matters a great deal. Among the Asian crisis countries, Korea enjoyed the strongest leadership once Kim Dae-Jung was elected president in late 1997, and it was the first country to get out of crisis. In contrast, Indonesia’s leader was in quite a weak position toward the end of his tenure. Although President Suharto signed the Letter of Intent with the IMF—which was actually quite exceptional for a president to do—it didn’t mean that he had strong ownership of the program, and the initial outcomes were not good. Members of his economic team were committed to and, indeed, pushed for the program that was agreed on, but this commitment was not shared at the highest level.

Of course, ownership by itself does not guarantee a strong program. If the IMF had agreed to the program that Suharto ideally would have liked, would it have led to a better outcome? I don’t think so. And if we had failed to agree, this would not have resolved Indonesia’s crisis either. So the reality can be very difficult at times. What is important in all cases is that the IMF does its very best to work with the crisis country to reach agreement on a truly effective program, one that the authorities are committed to implementing.

IMF Survey: We’ve also seen the rise of the anti-globalization movement. What do you make of it?

Sugisaki: I haven’t seen a single country that took the antiglobalization approach and was better off for it. In fact, quite the opposite: it’s clear that economic liberalization will, in the end, produce better living standards on average. The questions really are how to minimize the negative transitional element in globalization, and how to ensure that it works for the benefit of all. Here, the IMF will do what it can to help.

IMF Survey: The IMF’s Deputy Managing Directors share country responsibilities, and you have had a broad range of countries—some 70 spread throughout the world—to watch over. Have you learned lessons in one country that you’ve been able to apply to other countries?

Sugisaki: China’s experience offers several valuable lessons. It faces a lot of challenges, including in the banking and state-owned enterprise sectors, but its economic achievements have been remarkable. It’s been very eager to attract foreign direct investment, which has played a tremendous role in its economic development. The leadership recognizes that an open trade policy is in China’s interest, and this is helping to move forward a great civilization and make its enterprises internationally competitive. This open door policy is a good lesson for others.

Another fascinating case is Mozambique, which has successfully emerged from a prolonged internal conflict. I had the opportunity to see the reconciliation process firsthand when I visited there in 1999. I saw that opposition groups were represented in parliament and were participating actively in the policy discussions, however tense. This is as it should be. The leaders in Mozambique realized that continued internal conflict was damaging their country, and they succeeded in bringing it to an end. This is a lesson to other countries—too many are still in conflict. Without peace, there can be no real progress in improving the economic conditions of the people.

IMF Survey: Are you hopeful that your own country has finally begun to turn the corner economically?

Sugisaki: Japan’s economic growth rate has recently picked up, but it’s hard to say how much of the improvement is cyclical or structural. I do see some positive moves on the structural side. For example, there’s been a lot of restructuring, and mergers and acquisitions, especially in the manufacturing sector, which would have been unthinkable just 10 years ago. But some sectors need further restructuring, such as banking, real estate, construction, and retail.

IMF Survey: Do you think the IMF’s recent review of Japan’s financial system helped convince policymakers to tackle bank and corporate restructuring?

Sugisaki: In the end, the authorities appreciated our FSAP analysis, and the staff’s recommendations and analysis weren’t so different from those of the authorities. The authorities worried that if there were a lot of publicity, this would magnify the chances of the report having a negative impact on the market. As it turned out, even after the main recommendations became public, the market reaction was rather calm.

IMF Survey: What do you think of this trade-off between transparency and candor in the case of the FSAP?

Sugisaki: We should be very candid with the authorities about an FSAP’s findings but recognize that the findings can be quite sensitive and maintain some element of confidentiality. Perhaps the answer is to just release the summary of the FSAP recommendations in the form of the Financial System Stability Assessment that is carried out as part of the Article IV discussion—as increasingly countries are doing.

IMF Survey: You’ve been responsible for staff safety. What can the IMF do to provide greater security and still carry out its necessary work? What changes have been made since 9/11 and the bombing of the UN office in Baghdad in August 2003?

Sugisaki: We have strengthened our security at headquarters as well as in the field, especially over the past year. One concrete step is that we’ve tightened our procedures for mission clearance, sending our own security teams to assess whether UN phase 3 and phase 4 countries—those designated by the UN as most dangerous—are safe for missions to visit.

I must say that it was a shock to me that the UN became a target for terrorist attack. The attack resulted in the tragic deaths of many UN officials, including a good friend of mine, Sergio de Vieira Mello. His death was a great loss to the world. The attack also caused serious injuries to several IMF staff, and I pay my tribute to them. We certainly appreciate their courage and their understanding of our mission and mandate. We relied on the UN security umbrella. But since that attack and subsequent attacks on international relief organizations, such as the Red Cross, it is clear that we can no longer presume that international relief agencies will be free from terrorist attacks.

IMF Survey: How are we managing to help Iraq without physically being there?

Sugisaki: We are meeting with Iraqi authorities and the Coalition Provisional Authority economic team in nearby countries, such as Jordan, and we’re able to take advantage of such technologies as e-mail. We’ll continue to carry out our mandate to help Iraq formulate and implement an economic program. We’re actively working on the economic outlook for the year ahead, budgetary needs, and the debt picture, and we are also providing considerable technical assistance.

IMF Survey: You have also been watching over developments in Angola, Sri Lanka, and Timor-Leste. Is the IMF able to make an effective contribution to postconflict countries?

Sugisaki: Certainly in Sri Lanka and Timor-Leste we’ve done a lot in collaboration with other international organizations and bilateral donors, and this has been greatly appreciated by those countries. Of course, there’s more to be done. In Angola, we need to pursue transparency, especially within the oil industry. The authorities are aware of the need to ensure that all of the revenues and expenditures are reported in the budget. In that respect, a U.K. initiative on extractive industries that requires the government and the private sector to make all information public would be very important.

IMF Survey: What are your future plans?

Sugisaki: After nearly a decade with the IMF—an opportunity I’ve enjoyed tremendously—I’ve decided it’s time to go back to my home country and be reunited with the family. Obviously, given my background, I will continue to have an active interest in issues related to public service and the financial sector, so I imagine that’s the path I will follow. You know I can’t simply choose an entirely new life as an artist. Well, maybe as a hobby, I’ll take up pottery.

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