U.S. turns to controversial fund to back Brazil
Reuters, Friday, November 13, 1998 at 23:08
By Glenn Somerville
WASHINGTON, Nov 13 (Reuters) - The Clinton administration
again is turning to a fairly obscure 1930s-era fund to offer
backup aid, this time for Brazil's wobbling economy, in a
tactic that has proven a red flag for Congress in the past.
Treasury Secretary Robert Rubin on Friday said the United
States will provide up to $5 billion of $14.5 billion in
bilateral aid that 20 countries have pledged to support a
larger package arranged by the International Monetary Fund and
other lending institutions.
The U.S. contribution will come from the Treasury's
Exchange Stabilization Fund, a multi-billion-dollar pot of
money that falls wholly within the jurisdiction of the Treasury
secretary, subject only to presidential approval.
Congressional critics say the fund, set up in 1934 to
protect the dollar from big swings in value, was never intended
for the uses Treasury has put it to as a source for funds to
bail Mexico out of a financial crisis in 1995 and as a back-up
for later rescues of South Korea and Indonesia.
What particularly irks Congress, in its traditional role as
holder of the government's purse strings, is that Treasury can
tap the fund without getting lawmakers' approval.
The administration beat back a Congressional bid this
summer to sharply restrict its ability to use ESF resources for
international rescues, but those objections are likely to arise
again.
Rubin and Deputy Treasury Secretary Lawrence Summers
acknowledged as much, speaking to reporters at the White House,
by saying they had talked to several Congressmen in advance to
rally support for their Brazil effort.
With Congress adjourned, Rubin conceded only a limited
number of lawmakers were available. But he added: "Look, all of
us have been very focused on the financial crisis for the past
year and a half and I think that people have had a chance to
think through the interdependence of the global economy, the
stakes for our own economic well-being, of dealing with
contagion, and I think all of that has informed the way people
are reacting to this."
Summers said the pledge of U.S. aid was fully justified.
"Just to be clear, the ... statutes setting up the Exchange
Stabilization Fund authorizes its use to provide a guarantee in
this way on the authority of the Treasury Secretary acting with
the President's support," Summers said.
On March 31, the last date for which figures are available,
the fund held assets of $39.43 billion, primarily in dollars
invested in Treasury bills and in foreign currencies including
marks and yen and in Special Drawing Rights, the quasi-currency
used by the IMF.
The money given to Mexico from the ESF was repaid, with
interest, and in the case of Indonesia and South Korea it
served as a second line of defense and no funds were drawn.
Analysts say the fund gives the Clinton administration
flexibility to show leadership in emergency situations like the
financial crisis that began in Asia in mid-1997. It adds
credibility to U.S. efforts to rally support for its trading
partners and to contain spreading economic woes, as in the case
of Brazil.
"The broad idea of it is to achieve stability so if the
fund can't be used for purposes like this then I don't see what
it should be used for," said Robert Dederick, economic
consultant to Northern Trust Co. in Chicago.
There was a vote of confidence from one corner of Congress,
as outgoing Speaker Newt Gingrich issued a statement saying he
was "very supportive of the relief plan for Brazil outlined
today," though he did not specifically mention the ESF.
Copyright 1998, Reuters News Service |
