[IWAR] FINANCE mixed reaction to US plans

From: 7Pillars Partners (partnersat_private)
Date: Sun Jan 25 1998 - 09:33:24 PST

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    Mixed Reaction for U.S. Global Finance Plans
       By Knut Engelmann
       WASHINGTON (Reuters) - A fresh initiative launched by Washington to
       improve the global financial system in response to Asia's financial
       crisis has been stymied by a lack of new ideas and a lukewarm response
       from some key allies.
       Now the pressure is on U.S. Treasury Secretary Robert Rubin to come up
       with a map for the way ahead.
       If he fails, an opportunity to learn the painful lessons that Asia's
       crisis could teach both governments and private investors may be lost,
       analysts said.
       "They have no ideas whatsoever," said a government official from one of
       the Group of Seven industrial nations. "I guess that's why they want to
       talk about it."
       Overwhelmed by the financial crisis that struck Mexico in 1994-95,
       leaders of major industrial countries agreed at their June 1995 summit
       to establish a new early warning system.
       Critics say the plan was woefully inadequate and failed to forestall
       current troubles. Not much has happened since.
       In a speech last week, Rubin again said Washington was seeking to
       "develop a consensus on further steps" with its G7 partners and other
       nations linked to the Asian rescue effort. But asked what the financial
       system he envisioned might look like, Rubin admitted with a laugh: "The
       answer to that I do not know."
       As Washington struggles with a new sex scandal that many say will weaken
       President Clinton's leadership, his administration's lack of concrete
       designs for a revamped financial system is already reducing its clout in
       the G7. Rubin's proposal to convene a meeting of finance ministers from
       around the world -- originally announced by Clinton at the Asian Pacific
       Economic Cooperation summit in Vancouver last November -- stirred little
       excitement in other capitals.
       French Finance Minister Dominique Strauss-Kahn said there was no need
       for a special meeting since the G7 would discuss Asia at its scheduled
       meeting next month. He said the real concern now was competition from
       cheap Asian imports.
       Germany said there would be no separate G7 gathering, although Britain
       welcomed the plan as a "very constructive idea". Tokyo said it had yet
       to be informed about any such meeting.
       "I don't think anyone really has a very clear notion of what the general
       strategy for dealing with these problems should be, or indeed what the
       next steps ought to be," said Princeton University economics professor
       Peter Kenen.
       The IMF itself, which Washington insists must be at the center of any
       international rescue strategy for troubled economies, takes a cautious
       attitude to suggestions of change.
       "I think more steps need to be taken. But they're all suspended waiting
       for the launch of the Euro," IMF Managing Director Michel Camdessus told
       French television.
       "It's only after the Euro will have been established and will have
       stabilized that we can go on to other concerns."
       That would put revamping the financial system on hold for at least
       another year -- Europe's common currency is not scheduled to go into
       effect before the start of 1999.
       So far, Rubin's proposals to deal with future crises comprise familiar
       concepts such as greater transparency, stronger financial institutions,
       and better regulation.
       He also wants the international community to seek ways of ensuring that
       private creditors, particularly large banks, pay the price for bad loan
       and investment decisions.
       But analysts say this is easier said than done -- letting banks fail
       risks widespread financial collapse that could hit the booming U.S.
       economy with a vengeance, while simply bailing them out could encourage
       even more reckless lending.
       "I just don't see that there's very much we can do about it with the
       instruments and agencies that we have available," Kenen said.
       The lack of ideas to solve this puzzle has contributed to mounting
       domestic opposition to the IMF and Washington's role in bailouts for
       troubled Asian nations, in which the international community has dished
       out $100 billion in loans.
       Clinton has asked Congress to approve a total of almost $19 billion in
       fresh money to bolster the IMF's depleted coffers, but his chances of
       winning approval appear increasingly slim.
       Senate Majority Leader Trent Lott said Friday the IMF was dogged by
       policy and leadership problems and needed to be reformed before any more
       money could be made available.
       U.S. officials realize they have to find a solution if they want to
       convince both Capitol Hill and their partners abroad that they have the
       ideas needed to prevent the financial crises of the future. But they
       also know there is no quick fix.
       "I don't see a silver bullet out there that's going to make all this go
       away," the U.S. Treasury's Assistant Secretary for International
       Affairs, Timothy Geithner, said Friday.

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