October 25, 2019
Thought from the Financial Crisis in Argentina
By SUZUKI Keisuke
The world’s financial market was pounded by Argentine domestic situation triggered by the loss of the incumbent President Mauricio Macri at the primary of the presidential election. Argentine Peso sharply dropped and marked the lowest rate ever, as well as Argentina related commodity prices showed quite volatile movements. While I am not in a position to comment on a specific country’s situation, in the age of globalization, Japan cannot be unaffected from the impact of the world economic and financial markets’ trend. As this time Argentina was struck by the sharp drop of its currency price, the government, particularly the financial agencies are required to be constantly careful of ‘distortion’ in the emerging economies that could trigger the bigger risk.
If to generalize, it is nothing but “the autoignition temperature of the financial market crisis will be low when the market recognizes imbalance or certain economic situation,” and “we shall never underestimate the power of the market.” No matter how much the international institutions are built to coordinate, there is a limit what a government can do in a short-term once market gets volatile. Various fields will be affected and cannot be unharmed until the market gets calmed.
As long as financial market exists, leverage cannot be zero however regulated, and vicious circle of negative effects will be unavoidable. Of course, based on the past lessons, measures to deter the impact have been prepared and much progressed in last two decades, but a free financial market is essential for the promotion of economic growth, so it is impossible to avoid any risks nor the regulation shall not be too tight.
Therefore, it is necessary to have a preventive multilateral framework for the possible crisis, like the Chiang Mai Initiative which was created after the Asian Financial Crisis in 1997, and countries shall make efforts on administrating a balanced economic policy as well as strengthening their bases of economy so the market will not focus on the inbalance or the possibility thereof. As I have witnessed closely the tensions at my first job in the International Bureau of Ministry of Finance right after Asian and Russian financial crises, or when I was tasked on foreign exchange assignments in the U.S. after 9-11, I would like to emphasize the importance of preventing the world financial crisis before it gets out of control.
(This is an English translation of the article written by SUZUKI Keisuke, GFJ Political Governor / Member of the House of Representatives (Liberal Democratic Party), which originally appeared on the e-forum “Giron-Hyakushutsu (Hundred Views in Full Perspective)” of GFJ on August 28, 2019.)