FOCUS-G7 takes another shot at global turmoil
Reuters, Friday, October 30, 1998 at 23:10
(Updates with Rubin comments, background, PVS London)
By Knut Engelmann
WASHINGTON, Oct 30 (Reuters) - Top industrial nations on
Friday proposed another plan to douse the financial firestorm
threatening growth and prosperity around the globe, eager to
stop the flames from consuming yet another major economy.
The latest measures by the Group of Seven countries aim to
keep a tighter check on fickle flows of short-term capital and
make the most of $90 billion in new money for the International
Monetary Fund and its efforts to bail out crisis-hit nations.
Brazil, the Latin American powerhouse hovering dangerously
close to the economic abyss, was set to become the first
beneficiary of a new warchest designed to give nations fast and
easy access to funds needed for fighting off investor attacks.
"We must do more to build a modern framework for the global
markets of the 21st century and to limit the swings of boom and
bust that destroy hope and diminish wealth," G7 leaders said in
a statement that echoed a similar 10-page document drawn up by
their finance ministers and central bankers.
Britain took the lead in coordinating the measures because
it currently chairs the G7, which also includes the United
States, Japan, Germany, France, Italy and Canada. The plans,
which emerged from a series of telephone calls between the G7
leaders, also addressed French and German concerns of excessive
volatility in financial markets but skirted clear of any
proposals to curb capital flows.
G7 officials privately acknowledged the statement contained
few new ideas beyond the relatively strong endorsement of a
crisis-prevention fund, an idea floated by U.S. President Bill
Clinton earlier this month to seize the initiative ahead of a
meeting of G7 finance ministers and central bankers here.
"The news is that we've finally come to a realization
around the world that something needs to be done," said Greg
Mastel of the Economic Strategy Institute, a think-tank in
Washington. "But beyond that, there's really not that much."
Immediately after the G7 statement's release, French
President Jacques Chirac said there was a need for much greater
coordination to ensure stability in currency exchange rates,
particularly with the advent of Europe's single currency.
His remarks reflected a growing uneasiness among some G7
members -- France and Germany in particular -- that global
market instability has proven the case for tougher regulations
of the free-wheeling international financial system.
In Washington, Clinton hailed the plans as a "very, very
important" part of global efforts to put a more human touch on
the harsh realities of the global economy.
His Treasury Secretary, Robert Rubin, said the statement
was notable for drawing on the efforts of all G7 leaders and
forecast it would set the agenda for debate for years to come.
"What you see is a framework within which the international
community is going to be working for a long time to come," he
told reporters at the White House.
Global financial markets liked what they heard with London
stocks closing up 1.5 percent and the Dow Jones Industrial
Average in New York rising 1.14 percent to 8,592.10 points.
Markets in Brazil reacted enthusiatically to what traders
said was a perception that IMF help for the battered economy
was near, pushing its main stock index up 7.8 percent.
Brazil has drawn up an $84 billion belt-tigthening plan
which it hopes will convince the IMF to come up with some $30
billion in funds -- some of it provided directly by other
governments -- that could help it fend off a painful crisis.
Top Brazilian officials were on their way to Washington on
Friday for last-ditch talks with the IMF to secure the loan.
The new IMF mechanism, described by G7 bureaucrats as a
"contingent financing facility," would offer countries that are
deemed to be on the right path of reform a line of credit that
could be drawn on when needed and repaid relatively quickly.
"Some of the ideas involved with contingency financing
could possibly find application in Brazil, although that will
of course depend on how the situation in Brazil progresses,"
Deputy Treasury Secretary Lawrence Summers said.
The more familiar parts of the G7 statements -- the last
such communique was issued less than a month ago -- contained
ideas such as improved regulation, greater transparency, and
codes of best practice to prevent a rerun of the crisis that
started last year in Asia and swiftly swept around the globe.
The G7 stopped short of saying the crisis was over, even
though stock markets have clawed back a good chunk of the steep
losses they suffered over the summer. But leaders said they had
been encouraged by a number of recent economic developments.
Interest rates had been cut in the United States, Canada,
Japan and several European countries. Japan had shown its
intention to get over a deep recession, even though it still
needed to take urgent action to stimulate demand and clean up
its messy banking sector.
"The key is for each of us to do our part," Rubin said.
"But there's a lot of hard work ahead and I don't think any of
us should lose sight of that."
Copyright 1998, Reuters News Service |
