Thursday January 15 8:25 AM EST
China Says it Won't Devalue Currency
By Andrew Browne
BEIJING (Reuters) - The United States on Thursday welcomed China's
pledge to support Asia's embattled economies by not devaluing its
currency.
Top U.S. Treasury official Lawrence Summers said the promise, reiterated
during his meetings with Chinese economic tsar Zhu Rongji and other top
officials, was a vital contribution to Asian stability.
"The Chinese reiterated their unequivocal commitment not to devalue,"
Summers told reporters after arriving in Beijing on Thursday and heading
straight into discussions.
"I welcomed the Chinese unequivocal commitment to maintainance of their
exchange rate regime," he said.
The assurance "was the most important contribution that China could make
to stability in Asia."
According to one theory, China set the stage for the financial crisis in
Asia with a 33 percent devaluation of the yuan in 1994 that gave a
momentous boost to Chinese exporters at the expense of Asian rivals.
There are fears that another devaluation could unleash a new torrent of
Chinese exports and snuff out any hopes of an export-led revival in the
region.
The U.S. Deputy Treasury Secretary was in the Chinese capital as part of
an emergency tour of Asia to try to shore up confidence.
He is heading a delegation from Treasury, the State Department and the
U.S. National Security Council that has already visited Singapore,
Indonesia, Malaysia and Hong Kong.
In China, Summers said he held wide-ranging talks on the Asian situation
and on Chinese economic policy, following up on discussions initiated
between U.S. President Bill Clinton and Chinese head of state Jiang
Zemin.
"I think it was a very good and worthwhile discussion and it very much
suggests that as the two presidents wished, our countries are
cooperating well on these issues," he said.
He said he saw eye-to-eye with Chinese leaders on the primary role of
the International Monetary Fund (IMF), and that bilateral aid should
only be a backstop.
"We agreed that the performance of our economies along with the
performance of the Japanese economy were profoundly important to the
situation in Asia," he said.
China has emerged so far unscathed from the economic meltdown afflicting
smaller Asian economies, and has indicated it intends to use its growing
economic weight as a force for stability in Asia.
"China, as a major economy in the region, has the potential to be a
source of strength as it works to continue to grow, to continue to open
its economy and continues to deepen its financial system," Summers said.
In addition to talks with Zhu, he met the Governor of the People's Bank
of China, Dai Xianglong, and Vice-Finance Minister Liu Jibin. He was due
to leave for South Korea later on Thursday.
Summers arrived amid a revolt in the U.S. Congress over the IMF bailout
for Asian economies, which is complicating efforts by the U.S.
administration to seize the initiative in the crisis.
The IMF has put together huge bailouts totalling more than $100 billion
for South Korea, Thailand and Indonesia since the July 2 crash of the
Thai baht currency roiled Asian markets.
On Wednesday, the second-ranking Democrat in the U.S. House of
Representatives, David Bonior, threatened to oppose the bailouts.
"We cannot support a bailout that imposes an economic stranglehold on
working people, tramples democratic rights, ignores the underlying
causes of instability, and then asks the American taxpayer to foot the
bill," he said.
On Wednesday, the U.S. Treasury Department said it was laying the
groundwork for an international meeting of finance ministers to discuss
new approaches to the crisis.
---
________________________________________________________________________
Leader of Hong Kong expects more economic turmoil
Copyright ) 1998 Nando.net
Copyright ) 1998 Reuters
HONG KONG (January 15, 1998 06:49 a.m. EST http://www.nando.net) - Hong
Kong leader Tung Chee-hwa said Thursday that Asia should brace for more
economic turmoil and vowed again to fend off speculators against the
local dollar.
"The storm ... has not yet blown over and we must constantly be on the
alert," he told the 60-member provisional legislature before opening a
question-and-answer session.
Tung is facing one of his toughest tests since taking charge of this
capitalist outpost of 6.5 million people in July, when Britain ceded the
former colony to communist China.
He emphasized Hong Kong's economic fundamentals were sound and said it
had ample reserves to take on the speculators who have laid waste to a
string of Asian currencies.
Speculative attacks have forced up interest rates to defend the dollar,
and Tung admitted more assaults were likely to test "our resolve and
ability to maintain the linked rate."
The local dollar has been linked to the U.S. currency since 1983, and
higher rates being used to preserve the peg have dealt a hard blow to
the economy, with tourism, retail sales and property prices all
suffering.
But Tung, a former shipping magnate picked by Beijing to run Hong Kong,
was adamant the dollar peg would hold.
"The fundamental approach is to unshakably defend the peg. This is the
basic policy to maintain our economic stability and prosperity," he
said. "If we don't hold the peg, the consequences are unimaginable."
His comments came after Hungarian-American fund manager George Soros
said the interest rates required to hold the Hong Kong peg were exacting
a heavy toll on the economy.
---
Tuesday January 13 10:41 AM EST
Japan Says Economy Shows Signs of Real Pain
By Yoko Kobayashi
TOKYO (Reuters) - Japan's financial headaches have not only dampened
sentiment but are beginning to upset the real economy, the government's
economic report said Tuesday.
"Recent declines in share prices, failures of financial institutions and
drastic changes in Asian economies have worsened consumer and business
sentiment and are having an effect on private consumption and capital
spending," Economic Planning Agency (EPA) minister Koji Omi told a news
conference.
The monthly EPA report said the economy was still stalled, but admitted
that it was slipping into more difficulties.
But it did not prescribe any additional steps to help Japan cope with
the current problems and merely stated the economic measures already
announced by the government, such as a two trillion yen ($51.2 billion)
income tax rebate and the use of 30 trillion yen ($228.1 billion) in
public funds to stabilize the financial system.
Domestic and foreign pressure has mounted in recent weeks for Japan to
take further fiscal measures to jump-start a economic recovery.
"For the time being, we must put top priority on efforts to pass
legislation regarding (the announced economic) steps," Finance Minister
Hiroshi Mitsuzuka said.
EPA's Omi said the timing of parliament approvals on economic stimulus
and financial stability steps would be the key to whether the economy
will improve quickly or not.
A senior EPA official said Japan is entering a critical stage where
economic stimulus steps have yet to be implemented, company inventory
levels are still relatively high, and financial system worries linger.
"The economy will improve somewhat if we can hold out through the
January-March period .... We are not worried about a recession," the
official said.
But the public appeared to be growing impatient.
A newspaper poll released Tuesday showed public support for Japanese
Prime Minister Ryutaro Hashimoto's cabinet has dropped to its lowest
level ever while a majority of voters called for more economic steps
such as deeper tax cuts and greater public works spending.
Hashimoto, however, remains negative towards a permanent, large-scale
tax cut. He told the Lower House parliament's full session that Tokyo
will make efforts to boost the economy so that there will be no need for
special income tax rebates in or after the fiscal year ending March 31,
2000.
In a move seen prompted by embarrassment over Japan's economic woes, a
man armed with a "pistol-like object" and identified as an
ultra-nationalist broke into Tokyo Stock Exchange (TSE) Tuesday
afternoon.
The gunman demanded that trading on the exchange be suspended and that
Finance Minister Mitsuzuka should come to see him. Police said he was
captured after holding a Tokyo Stock Exchange official hostage for
nearly six hours and his hostage was released.
Some far right groups regard the decline in the economy as a stain on
the country's reputation.
Tokyo stocks ended slightly firmer Tuesday, as trade was uninterrupted
by the gunman's entry into the TSE although it set off a brief panic
among traders earlier.
The benchmark Nikkei 225 average ended 91.50 points, or 0.62 percent,
higher at 14,755.94.
Traders said they still held out the hope that further economic steps
may be in store.
The Nikkei index was buoyed by recovery on Wall Street and a surge in
share markets across the region, brokers said. The expectation of
further Japanese government measures to boost the economy supported
market sentiment, they said.
Taku Yamasaki, policy chief of the ruling Liberal Democratic Party, told
a conference in southern Japan that additional steps could be considered
in a few months.
"If the cherry blossoms don't bloom well this year, we could consider
it," Yamasaki was quoted by Jiji news agency as saying in response to a
question about economic stimuli.
Cherry blossom season in Japan is usually late March to early April.
---
Thursday January 15, 4:57 am Eastern Time
INTERVIEW-Seoul wants to delay bond in debt talks
By Bill Tarrant
SEOUL, Jan 15 (Reuters) - South Korea does not want to convert
short-term commercial debt into state bonds right now -- something its
global creditors have suggested -- because of its poor debt ratings, a
key policy maker said on Thursday.
Kim Yong-hwan, head of the Joint Presidential Committee on Economic
Policies, said in an interview that Seoul would prefer its creditors
convert part of its short-term debt into ``a simple revolving line of
credit.''
Another part of the short-term credit could be converted into a medium
line of credit with government guarantees.
``And we will sound out the possibility of organising -- not a big
amount -- new money in the form of a syndicated loan,'' Kim said.
The former finance minister heads a 12-member committee comprising six
representatives from outgoing President Kim Young-sam's administration
and six from President-elect Kim Dae-jung's camp. He takes office on
February 25.
Talks between Korean officials and its global creditors are set to
resume in New York on Monday.
One idea put forward by U.S. bank J.P. Morgan & Co would convert
billions of dollars in short-term debt owed by Korea's banks into bonds.
But Kim Yong-hwan and other officials in Seoul have been notably
unenthusiastic about the proposal, given the fact that the country's
debt ratings are on the level of junk bonds.
``The bond should come later. At this moment, can the government safely
underwrite at these rates? We don't want to issue bonds under junk,''
Kim said.
``When the time ripens, then the next phase is to have a bond issue,''
he said.
He said bankers should be concerned about Korea's long-term viability.
``In Korea, we have a proverb: don't kill the hen when you can feed her
and get eggs.''
Seoul is keen to get its credit ratings upgraded in order to get its
borrowing back on a normal footing.
Kim said he met with teams from Moody's Investor Service and Standard &
Poors Corp this week and assured them that a key concern -- labour
reform -- would take place.
On Thursday, Seoul launched a tripartite council comprising
representatives of labour, management and government. It will find ways
of downsizing all three sectors under a philosophy that all must share
the pain, Kim said
The council will seek to hammer out a consensus on legislation to be
submitted to the National Assembly next month that would make it easier
for businesses to shed workers as they themselves reduce their
operations.
President-elect Kim has promised to cut the presidential staff in half
and downgrade or merge seven ministries or ministry-level agencies.
The 1998 budget will be cut by 15 percent and some of the savings would
go toward a 5 trillion won unemployment fund, Kim Yong-hwan said.
The formation of the tripartite council was a key concern of the ratings
agencies. ``They repeatedly asked about it,'' Kim Yong-hwan said.
Copyright ) 1998 Reuters Limited. All rights reserved. Republication or
redistribution of Reuters content is expressly prohibited without the
prior written consent of Reuters. Reuters shall not be liable for any
errors or delays in the content, or for any actions taken in reliance
thereon
---
Thursday January 15, 10:16 am Eastern Time
Asia crisis to cut 1998 US GDP 0.5 pct - McDonough
NEW YORK, Jan 15 (Reuters) - Federal Reserve Bank of New York President
William McDonough said on Thursday that the U.S. central bank expects
the Asian crisis to have a significant, but moderate, impact on U.S.
growth this year.
``We have a view that a slowdown is likely to take place.... a modest
(one),'' McDonough told reporters.
McDonough spoke at the Securities Industry Association (SIA) meeting on
the issue of dealing with the Year 2000.
The New York Fed president estimated that the Asian crisis would
subtract 0.5 percentage point from U.S. gross domestic product this
year. However, he did not disclose any Fed estimates for 1998 GDP
growth.
Asked about the situation in South Korea, McDonough said the most
important thing was for ``people in the private sector to come to an
agreement.''
The bulk of South Korean debt that needs to be renegotiated is held by
and has been issued to the private sector.
Queried about the austerity conditions that the International Monetary
Fund is requiring Asian countries to adopt to get international aid,
McDonough said this was to be expected at the early stage of a crisis.
``In the very early part of (the crisis), high interest rates are needed
to stabilize markets,'' McDonough said.
He added that some of the criticism of the IMF resulted from a mistaken
parallel with the Latin American [NYSE:LDF - news] debt crisis of the
1980s.
He also welcomed reforms announced by Japan to stimulate its economy.
Copyright ) 1998 Reuters Limited. All rights reserved. Republication or
redistribution of Reuters content is expressly prohibited without the
prior written consent of Reuters. Reuters shall not be liable for any
errors or delays in the content, or for any actions taken in reliance
thereon
---
Posted at 7:07 a.m. PST Tuesday, January 13, 1998
Opposition to new IMF funding grows
WASHINGTON (AP) -- Liberals and conservatives are lining up to defeat a
Clinton administration request to Congress for billions of dollars for
the International Monetary Fund, whose coffers have been depleted by
economic bailouts in Asia.
Some participants say the request for nearly $20 billion may meet the
fate of ``fast track'' trade legislation last November when Congress
voted down authority for President Clinton to negotiate trade deals that
it could not change.
The request includes $3.5 billion for an emergency bailout fund that
Congress failed to approve last year and more than $16 billion for the
U.S. share in new IMF lending power.
Sen. Lauch Faircloth, R-N.C., chairman of the Senate Banking
subcommittee on financial institutions, kicks off a round of panels and
hearings on the issue Wednesday. He wants the Republican-controlled
Congress to reject new funding for the Washington-based international
lending institution.
Rep. Bernie Sanders, an independent from Vermont, and groups ranging
from Friends of the Earth to the conservative Heritage Foundation plan a
meeting on IMF funding Thursday. Sen. Alfonse D'Amato, R-N.Y., chairman
of the Senate Banking Committee, plans a formal hearing after Congress
returns Jan. 26 with Treasury Secretary Robert Rubin and other
officials.
``We must be vigilant and aware of what is taking pace but insist on
discipline and thoughtful action before taxpayer dollars are put at
risk,'' D'Amato said in a statement Monday on the bailouts.
Sanders is predicting a bitter debate with Clinton and House Speaker
Newt Gingrich on one side and the liberal-conservative alliance on the
other, saying taxpayer money should not be put at risk for ``socialism
for the rich.''
Rep. Peter DeFazio, D-Ore., is preparing a bill that would change the
way the IMF gets its money by getting international banks to impose a
user fee on certain transactions, an aide said Monday.
Marijke Torfs, a director of the environmental group Friends of the
Earth, said ``the left and the right are together'' in opposing IMF
bailouts. ``The right says bailouts interfere with the market. The left
says taxpayers should not pay for them because they cause job losses in
countries receiving them and overexploitation of natural resources.''
Ian Vasquez, of the conservative Cato Institute, said neither the
American public nor Congress has liked IMF bailouts and predicted
opposition inside and outside Congress would grow during the next few
weeks.
The bailouts ``are an expensive, bureaucratic and unjust solution to
what would occur quickly and fairly under market conditions,'' Vasquez
said. ``If investors have bet the wrong way in a country they should
take their medicine and not get rescued by the IMF.''
Two influential Republicans, House Ways and Means Committee Chairman
Bill Archer, R-Texas, and Jack Kemp, the 1996 Republican vice
presidential candidate, expressed doubts in weekend television interview
programs about IMF bailouts in Asia and whether Congress will authorize
more money for them.
Defending the bailouts, Rubin said last week he hoped Congress would
approve the request for new IMF funding ``because our economic interests
are so much at stake.'' The administration rushed his deputy, Lawrence
Summers, to Asia for urgent consultations this week with the region's
governments on the financial crisis.
The administration also wants to keep the 182-nation IMF strong because
it is the only organization that can step into a crisis as the lender of
last resort. Since July the IMF has arranged rescue packages totaling
$120 billion for Thailand, South Korea and Indonesia, committing $32
billion of its own resources.
)1997 - 1998 Mercury Center. The information you receive online from
Mercury Center is protected by the copyright laws of the United States.
The copyright laws prohibit any copying, redistributing, retransmitting,
or repurposing of any copyright-protected material.
This archive was generated by hypermail 2b30 : Fri Apr 13 2001 - 13:00:54 PDT