SOROS SAYS U.S. SLOWDOWN WILL HAVE "SERIOUS
REPERCUSSIONS" IN EMERGING MARKETS
GEORGE SOROS SAYS U.S. ECONOMY WILL HAVE "BOUNCY AND
HARD" LANDING, REUTERS REPORTS.............................................Soros Sees Hard Landing for U.S.
Economy
Last updated: 31 Dec 2000 19:20 GMT (Reuters)
SANTIAGO, Chile (Reuters) - Billionaire U.S. financier
George Soros said the United States was in for a
"bouncy and hard" landing as the world's largest
economy slows, but his main concern was for spillover
turmoil in emerging markets, according to a local
newspaper report on Sunday.
In an interview with Chile's influential El Mercurio
newspaper, Soros also said he expects the U.S.
Federal Reserve to lower key interest rates
aggressively at the start of 2001 but that a new
global crisis was inevitable.
"I believe that it (the landing) will be bouncy and
hard. A hard landing means a slowdown and could
eventually turn into a recession or in low growth for a
couple of quarters. We are in a fairly classic
slowdown cycle in the United States," he said.
"But I am much more worried about the consequences
on the edge of the system because this edge has
been weakened because of the 1997-1998 crisis, and
I believe will have more serious repercussions in
distant regions, such as southeast Asia," the
Hungarian-born fund manager turned philanthropist
said.
NO CRASH AFTER A CRASH
Asked if he saw a second Asian crisis looming, he
said: "No, I do not think so, not to the same degree
or depth as before. The markets are already down,
which means you cannot have a crash after a crash."
In Chile on vacation, Soros said global markets have
been predicting -- "better said accelerating" -- a
slowdown.
"I think this time the (U.S.) Federal Reserve is more
following the market than leading the market. But I
believe it will lower rates very aggressively at the
beginning of next year," he said.
Soros said the problem with the looming crisis this
time was inadequate capital flows from industrial
nations to emerging nations.
"The last crisis was the product of a boom of
investments in emerging markets, followed by a very
steep fall. Now the problem that the world faces is
inadequate capital flows from countries at the center
to countries on the periphery.
"It is going to be a chronic, not a temporary crisis,
and I believe it is already underway," Soros predicted.
CRISIS CANNOT BE AVOIDED
Asked if a new crisis could be stopped, Soros said: "It
cannot be avoided, but I believe that positive
incentives can be created that could promote
investments in emerging countries and those should
be put in place by the international financial
institutions."
On Argentina, Soros said South America's
second-largest economy was going through a difficult
time "because it is trapped with an overvalued
currency, which cannot be corrected because there
is no escape from monetary parity."
Argentina has its peso currency pegged to the dollar
-- one peso per dollar. Concerns about a looming debt
default have forced the Argentine government into
accepting economic reforms, such as spending
freezes and wages cuts and privatizations, in return
for a $39.7 billion bailout plan backed by the
International Monetary Fund (IMF).
"Any notion of devaluing makes no sense, because it
would only create a financial crisis and would not
resolve the problem of overvaluation," Soros said.
"An even bigger problem for Argentina is the high cost
that Argentina has to pay to fulfill its existing debt
obligations. The IMF has come out with a fairly large
package, larger than expected, which really should
help Argentina to survive, but it might not necessarily
allow it to grow."
"I think Argentina has to pass through an adjustment
process that is going to be painful. Eventually it will
emerge, as long as there is no fall in the global
economy." |
