White House proposes guidelines
for future financial crisis
ASSOCIATED PRESS
WASHINGTON, Oct. 24 — The Clinton administration is proposing a broad set of principles to govern future financial crises, including provisions that would make sure that wealthy investors share the burden when developing countries run into financial difficulties.
THE PROPOSALS were expected to be a hot topic during discussions at a financial summit in Montreal on Tuesday and Wednesday. The U.S. delegation was to be led by Treasury Secretary Lawrence Summers and Federal Reserve Chairman Alan Greenspan.
Summers wants to make sure that whatever rules are adopted to govern future crises contain maximum flexibility, with each crisis handled on a case-by-case basis.
The United States opposes a proposal supported by some European countries for more rigid rules to spell out the responsibilities of investors during times of crisis.
The talks will take place at a meeting of the Group of 20, finance ministers and central bank presidents from the world’s wealthiest countries and some of the biggest developing nations such as China, India and Brazil. Russia is also a member.
The group, which held its first meeting last year in Berlin, is viewed as a way to develop a consensus among the major players in the global economy on how to improve the system.
INFLUENCE OF ASIAN ‘FLU’
In a speech Monday, Treasury Undersecretary Timothy Geithner conceded that the Asian financial crisis that pushed 40 percent of the globe into recession two years ago caught finance officials unprepared to cope with changes brought on by new technology and the speed by which huge amounts of money could be whisked between countries.
“The system was in some sense behind the curve in developing the capacity to manage these new sources of pressure and risk,” Geithner said. “Policy-makers in the emerging markets were behind the curve, and the rest of us were as well.”
Since that time, Geithner said, rich and developing countries along with the International Monetary Fund, the world’s primary crisis manager in financial emergencies, have moved to put in place changes to prevent future crises or at least to manage them better. But he indicated more needs to be done to make sure the private sector bears its share of the burden.
PRIVATE INVESTORS’ BURDEN
“Private investors should not expect to be protected from adverse outcomes by official action,” Geithner said in a speech to the Securities Industry Association and the Emerging Markets Traders Association, two groups that would be most affected by decisions on private sector involvement.
In both the Clinton administration-led rescue of the Mexican economy in 1995 and the IMF-led rescues of several Asian countries, Russia and Brazil in 1997-98, critics complained that government money was being used to bail out wealthy investors facing huge losses.
Geithner said the IMF is making progress toward ensuring the private sector plays a role in resolving future financial crises.
In resolving debt crises in Pakistan, Ukraine, Romania and Ecuador, the IMF established terms to make sure that private investors participated in the rescue efforts. In Ecuador, investors eventually agreed to take 40 percent losses on $6.5 billion in bonds issued by the Ecuadorean government.
Geithner said these cases are setting precedents for how the IMF will handle future cases.
It was unclear, however, (cont)
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