that the IMF policies may be appropriate in Latin America where savings are low, but they are not appropriate for Asia, where savings are very high. Austerity is also not appropriate when it has to be administered to many countries at the Same time. They are definitely cutting worldwide aggregate demands and therefore are aggravating problems of slow world growth. Leading American bankers from the Wall Street now begin to wonder aloud if the IMF prescribes too much austerity, Mr. Barton Biggs, a chairman of Morgan Stanley Asset Management, said recently that instead, the IMF should implement programs that enable the Asian countries to grow out of harm's way. The World Bank's vice president even criticized the IMF publicly and openly.
Mr., Joseph Stiglitz also stated publicly that "there are crises in confidence in Asia today, so you don't want to push these counties into severe recession. Virtually, every American economist rejects the balanced-budget idea of principle during the recession. Why should we ignore this when giving advice to other countries?"
Lastly, thanks to God. The IMF has conceded that conditions imposed on Thailand as part of a multibillion dollar bailout package have proved to be too much austerity. So they relaxed the conditions. So Thai was able to modify the IMF condition. They allowed us to have a budget deficit of at least 2%. Most recently, the U.S. Department of Treasury Secretary Lawrence Summers, responded to criticism of Congress on February the 4th, last week in Washington wanting to change the way the IMF went about its work.
The IMF, he said, needs to be better governed. The IMF needs to be more transparent in its operations and more accountable for its decisions if it is to command the confidence of taxpayers, American taxpayers, and investors.
But Mr. Summers urged Congress to approve $18 billion of new funds for the IMF anyway. So I think with current globalization the role of the IMF will probably be modified and adjusted in the process. The IMF prescriptions for the Asian financial crisis are under close scrutiny as China and India look again at their plans to move to capital account convertibility. In other words, convert the rupiah and yuan more easily. The role of the IMF public bailout package should therefore, be supplemented by more innovative marketbased bailout packages and some regional facilities in Asia.
In Asia today, the prospect for sharing, these have been coming very strong to create regional facility including Asian funds, the so-called "monetary cooperation zone", and the ASEAN recommendation called "Peer surveillance" to evaluate potential economic and financial crises in ASEAN countries. Most recently, a couple of weeks ago, the Malaysian Prime Minister proposed a "no dollar zone for Southeast Asia" to replace the U.S. dollar with regional currencies for intra-regional trade. And a most recent innovation has been proposed by the Tokyo Mitsubishi Bank to Indonesian and Japanese authorities, namely the creation of an exchange-stabilization fund of $15 billion to stabilize the rupiah. So all these are very interesting. Somehow the regional facilities are being conceived. I hope that they will be implemented.
My last point is the misalignment of dollar and yen. And this is the hidden agenda. People never pinpoint this, the so-called fallacy of manipulating the exchange rate. A recent joint study conducted by American and Japanese scholars warned that both Japan and the U.S. should by now recognize the fallacy of manipulating the exchange rate to reduce Japan's trade surplus and the U.S. trade deficit. In Japan, businessmen only fear a loss of intentional competition if the yen appreciates. The expectation that the yen is now likely to appreciate keeps Japanese interest rates close to zero. This year again people believe that yen appreciation will resume. With Japan's trade surplus and American trade deficit this could again trigger a reaction in the U.S. by trying to talk the yen up and the dollar down; once again another round of yen-dollar manipulation, I think from the third world that both sides should recognize the fallacy of this manipulation of the yen-dollar exchange rate to adjust their trade imbalances. But the new era of economic relations between the U.S. and Japan should be adjusted, that Japan should fully commit to liberalize is agriculture and service sectors, because all Asia has a trade deficit with Japan and all of Asia has a trade surplus with the U.S. At the same time the U.S. should stop using bilateral trade sanctions against Japan. Future American-Japanese trade disputes should be handled privately or referred to the WTO. At the same time, simple mathematics dictates that no one can have a trade surplus unless someone else has a trade deficit. It's a simple zero-sum game. If America lost its ability to run trade deficits in the near future, Asia, particularly Japan and China, would lose their ability to run trade surpluses and would face a very large downturn in the demands for their products.
So for the past five years the dollar's strength against the yen has represented a misalignment of exchange rates of
