ABSTRACT
It was September 1989-soon after I was dispatched by the Ministry of Finance to assume the post of Executive Director of the World Bank on behalf of the Japanese Government. I received a copy of a puzzling letter, addressed to the Japanese Government from the management of the World Bank. To be exact, the letter was from a Senior Vice President of the World Bank to the president of Japan’s Overseas Economic Cooperation Fund (OECF). The letter asked that OECF reconsider its subsidized policydirected loans to developing countries. The letter stated that such loans would militate against market determination of interest rates, “could have an adverse impact on the development of the financial sector,” and hence “would create unnecessary distortions and set back financial reforms” which had been supported by the Bank and the IMF. This argument was hardly acceptable to us, both for practical reasons and in light of Japan’s postwar experience of economic development.
