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LEAD: IMF panel urges Japan to go further in structural reforms+(Japan Economic Newswire Via Thomson Dialog NewsEdge) WASHINGTON, April 12_(Kyodo) _ (EDS: UPDATING WITH END OF MEETING) Japan should press further for structural reforms in order to counter increasing downside risks to its economic growth amid the global financial turmoil, the policy-guiding panel of the International Monetary Fund said Saturday. The International Monetary and Financial Committee urged Tokyo to make further progress on "structural reforms, including fiscal consolidation." Japan and other advanced economies have experienced financial turbulence resulting from the U.S. subprime mortgage crisis and their growth rates have declined, the panel said in a communique issued after its one-day meeting. At the same time, the IMFC pointed to rising inflationary risks stemming from higher food, energy and other commodity prices. The panel indicated the Bank of Japan and other central banks in advanced economies should cut interest rates if necessary, while keeping inflation at bay. "In the advanced economies, monetary policy should continue to aim at medium-term price stability, while responding flexibly to signs of a more pronounced and prolonged economic downturn," it said. The IMF recently trimmed its growth estimate for Japan to 1.4 percent for 2008 and 1.5 percent for 2009, down 0.1 and 0.2 percentage point, respectively, from its previous forecasts released in January. The committee noted that global financial instability has increased since its previous meeting last fall. "While each country's situation is different, coherent action must be taken, taking due account of cross-border interactions," it said. The IMF said in its semiannual Global Financial Stability Report released Tuesday that the deepening U.S. subprime mortgage crisis could cost the global financial system close to $945 billion, far bigger than earlier-projected figures. During the meeting, the IMFC discussed reforms of the IMF, including changes in its governance structure and measures to put its finances on a more sustainable footing. The panel is confident that the key reforms, recently agreed on by the IMF's Executive Board, "will strengthen the Fund's role in promoting global financial stability and international monetary cooperation and in serving its universal membership effectively at this critical juncture," the communique said. But U.S. Treasury Secretary Henry Paulson stressed the need for further reforms, rallying support from others of the 185-member IMF for "a smaller, more strategically focused" executive board. The current board "is simply too costly, and a smaller and more streamlined Board could focus more strategically on the management of the institution and less on the voluminous crush of papers," Paulson said in a statement submitted to the panel. Paulson specifically proposed cutting the number of the board's chairs from 24 seats to 22 by 2010 and to 20 by 2012. He proposed ending the current practice of permitting the five largest shareholders in the IMF to appoint their own directors and said the United States, the biggest shareholder, favors that all board chairs are elected. The IMF is expected to discuss the issue in the future and Japan supports the U.S. position, a Japanese Finance Ministry official said. The panel welcomed the agreement by the Executive Board on the realignment of IMF member quotas and voting shares as "an important contribution to enhance the Fund's credibility and legitimacy." The overhaul, based on the members' weight and role in the global economy, is designed to enhance the participation and voice of emerging-market and low-income countries in the IMF. It also endorsed the IMF's efforts to bring its debt-plagued finances back into line, including a new income model and a new medium-term budgetary framework, which reduces net spending by 13.5 percent in real terms over the next three years. The efforts provide for "a strengthened, integrated budget process to ensure lasting budget discipline and an allocation of resources reflecting the Fund's refocused strategic priories," the panel said. The panel confirmed that bilateral surveillance will "remain at the core of the Fund's work" and "an essential input into multilateral and regional surveillance." The IMFC acknowledged sovereign wealth funds offer "economic and financial benefits, including a stabilizing influence on financial markets." But it also said the state-backed investment entities, many of them owned by emerging-market economies and oil-rich Middle Eastern countries, also pose "several challenges for policymakers," welcoming the IMF's initiative to develop a code of conduct for those funds. Copyright ? 2008 Kyodo News International, Inc. |