Greenspan's evening speech.
-Jay
____________
Tuesday December 2, 9:01 pm Eastern Time
Greenspan sees stronger world economy after Asia woes
(Updates with details, adds quotes)
By Isabelle Clary
NEW YORK, Dec 2 (Reuters) - The world economy will emerge stronger once Asia's financial problems have been resolved,
U.S. Federal Reserve Chairman Alan Greenspan said on Tuesday night.
But Greenspan told economists in New York that developing countries needed to bolster their banking systems and open up
their markets to return to the rapid growth rates of the past.
''While the adjustments may be difficult for a time, these crises will pass,'' he said. ''Stronger individual economies and a more
robust and efficient international economic and financial system will surely emerge in their wake.''
His speech made little reference to the U.S. economy, which is in its seventh year of growth.
Economists expect the trouble in Asia and its possible fallout in the United States to prevent the Fed from altering interest rates
at its Dec. 16 meeting despite fears that a tight U.S. labor market could fan inflation.
Aware of strong U.S. growth, markets have been focusing on Asia's troubled emerging markets and on Japan, where big
brokerage Yamaichi Securities Co folded two weeks ago.
Greenspan said the Japanese government was ''finally'' acting appropriately to deal with domestic banking problems.
''In most developed nations, banking systems appear reasonably solid. Japan has been somewhat of an exception, but there
have been some positive signs there as well,'' he said. ''Banks have been recognizing losses, and the government seems finally
to be appropriately addressing their problems.''
He said short-term loans from the International Monetary Fund were in the best interests of the United States because a
breakdown in one country could spread to others. Contagion in Asia had been ''particularly troublesome,'' he said.
''The IMF, the World Bank and their major shareholders, the developed countries, may wish to facilitate adjustment through
temporary loans to government and the encouragement of private equity infusions to these banking systems,'' he said.
''Since any severe breakdown can have contagion effects on a worldwide basis, it is in our interest to do so.''
The IMF has already offered multibillion dollar rescue packages to Thailand and Indonesia and is close to sealing a deal with
South Korea, the world's 11th biggest economy.
Referring to the troubles, Greenspan said a slowdown in Asian growth was inevitable, but that this could be temporary.
''I say temporary because there is no reason that above-average growth in countries that are still in a position to gain from
catching up with the prevailing technology cannot persist for a very long time, provided their markets are opened to the full
force of competition,'' he said.
''We should strongly stress to the newer members of the international financial system -- the emerging economies -- that they
should accelerate the restructuring of their financial systems in their own interests,'' he said.
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