Countries must not be complacent about the state of the global economy, despite brighter signs of recovery, Japanese Finance Minister Naoto Kan on Saturday warned his counterparts at the International Monetary Fund.
Huge public debt in developed countries and surging capital inflows to emerging economies could disrupt growth, Kan said.
The remarks came after finance leaders from the Group of 20 rich and emerging countries said on Friday that while they had secured a better-than-expected global economic recovery, they were wary of overconfidence as Greece's debt crisis put the focus on worsening public finances.
Although the global economy is showing some signs of recovery, there still seems to be risks that could disrupt the world economy and financial markets, according to the text of Kan's speech to the IMF's International Monetary and Financial Committee. Thus, we should remain cautious about future prospects.
Kan said Japan's economy now seems to have a better chance of overcoming difficulties, but he added that the situation remains tough as shown in its persistently high jobless rate.
Under these circumstances, for the time being, we need to maintain the economic stimulus measures to ensure recovery, he said.
Japan faces a tough balancing act of keeping its fragile economy afloat while reining in a huge public debt that has reached 200 percent of gross domestic product -- the highest in the G7.
Deflation is adding to the pain by discouraging investment and spending, although the IMF said price drops were likely to slow as Japan's economy gradually recovers.
On IMF reform, Kan said the Fund should consider new types of facilities that would enable it to provide large loans more flexibly and promptly.
He did not elaborate but said currency swap arrangements that were put in place by central banks during the crisis played a key role in easing funding strains.
The Fund also needs to boost its capital and amend its Article to add as its key mandate the need to ensure global financial stability, taking into account lessons learned from the crisis, Kan said.
The word 'crisis' originates from the Greek word 'krisis,' which means the turning point of a disease. What we are facing now is precisely this -- a turning point, he said, stressing the need to sustain reform efforts.
(Editing by Padraic Cassidy)