From Tokyo with love
Japan knows how to win friends and influence people in the global community. The ailing nation is the first non-European to give to the IMF’s euro bailout effort with a $60 billion commitment. But China, too, has much vested in saving the euro and could learn from Japan’s unconditional largess.
This isn’t the first time Japan has shown the world generosity. Following the financial crisis, it stumped up $100 billion when the IMF needed it most. The fund’s vault was dangerously low, having doled out funds to Hungary, Ukraine, Latvia and others. That had left it with just $200 billion, heading into a serious downturn. Japan’s pledge kicked off a spree of other contributions and played a role in calming markets.
Now the IMF is again in need. The euro crisis isn’t going away so easily, evidenced by the recent run-up in Spanish and Italian bond yields. The fund managed by Christine Lagarde has about $400 billion of lending capacity, far less than would be needed in the event euro troubles flared up again with any severity. The $200 billion offered by euro-zone members was essential, but Japan, the IMF’s second-biggest stakeholder behind the United States, signals they will not fight alone.
China has powerful incentive to follow suit. Europe takes almost a fifth of its exports. The continent as a whole is a larger buyer of its goods than even the United States. It also provides an important foreign reserve currency to balance U.S. dollar exposure. The Middle Kingdom could seize the opportunity to haggle for more IMF voting power, justified by its growing economic heft. But a no-strings-attached loan from its $3.2 trillion foreign exchange war chest would send a stronger signal of its leadership role.
Helping to bail out comparatively wealthy Europe is understandably a sensitive issue for a nation with some 250 million citizens living on less than $2 a day. Ultimately, though, lending through the IMF is really no more dangerous than buying Treasury bonds – and the money would still be counted as part of China’s reserves. Japan’s largess offers a good global citizenship lesson for its large Asian neighbor.