Greenspan: Asian crisis could still widen
Posted at 10:06 a.m. PDT Thursday, May 21, 1998
WASHINGTON (AP) -- While noting some encouraging
developments, Federal Reserve Chairman Alan Greenspan said today
the Asian financial crisis remains highly volatile with the threat it could
spread to other parts of the world.
Greenspan and two Clinton administration Cabinet officials, Treasury
Secretary Robert Rubin and Agriculture Secretary Dan Glickman, also
stressed that the U.S. economy had not yet absorbed the full impact of
the financial turmoil that struck Indonesia, Thailand and South Korea
last year.
''Clearly, those economies are not out of the woods, as recent events
attest,'' Greenspan said.
Greenspan cautioned that there remained a ''small but not negligible
probability that the upset in East Asia could have unexpectedly large
negative effects on Japan, Latin America, and eastern and central
Europe that, in turn, could have repercussions elsewhere, including the
United States.''
He also stressed that there was a lag between the financial meltdown
in currency and stock markets and the impact of those adverse
developments on the overall world economy.
''The effects of the Asian crisis on the real economies of the
immediately affected countries, as well as on our own economy, are
only now just being felt,'' he said.
Greenspan appeared today with Rubin and Glickman as part of a
continuing effort by the administration and the Fed to win approval for
$18 billion in additional support for the International Monetary Fund,
whose resources have been depleted by the need to organize more than
$100 billion in financial bailouts.
The funding request has run into heavy opposition in the House, where
critics charge the IMF is too secretive and has been too inept in
handling the Asian crisis.
Greenspan and Rubin acknowledged the complaints, but they argued
that the IMF was undertaking reforms.
''We are learning fast and need to update and modify our institutions,''
Greenspan said. ''Meanwhile, we have had to confront the current
crisis with the institutions and techniques we have.''
Rubin told the committee that the IMF reform program for Indonesia
was ''a creative response to the economic crisis, not a cause.''
The riots that led to Suharto's resignation Wednesday turned violent
after Indonesia, under IMF pressure, removed energy subsidies causing
fuel prices to jump by 70 percent.
''The IMF program did include difficult measures but implementing
difficult measures is always necessary in restoring financial stability,''
Rubin said.
Commenting on Asia, Rubin repeated pledges President Clinton made
shortly after Suharto's resignation that the United States ''stands ready
to support Indonesia as it engages in democratic change.''
Glickman told the panel that Asia's troubles were already starting to
take a toll on U.S. farm exports and he predicted a $2 billion drop in
agricultural exports this year because of the crisis.
''U.S. sales losses are occurring in almost every product category,
especially corn, hides and skins, soybeans, cotton, animal feeds,
soybean meal, meats, fruits and vegetables and hardwood lumber,''
Glickman said. ''The reduction in import demand in Asia is also
lowering commodity prices around the world, reducing the value of
U.S. exports to non-Asian markets.''
The appearance of Greenspan, Rubin and Glickman before the House
Agriculture Committee came a day after Majority Leader Dick Armey,
R-Texas, warned that the chance for House approval of the $18 billion
IMF request appeared slim unless lawmakers get more information
about how the IMF operates.
Armey said he would vote against IMF funding ''if they continue to
leave me in the dark'' about what the 182-nation organization does,
including providing an internal analysis of how it has handled the Asian
crisis.
Armey is sponsoring legislation that would shine light on the secretive
53-year-old IMF by making public minutes of its board meetings and
establishing an independent review board similar to one that exists at its
sister institution, the World Bank.
Rubin and other administration officials have made more than a dozen
appearances before various House panels to try to persuade lawmakers
to vote for the funding measure. The Senate approved the
administration's IMF request 84-16 but the House has not.
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