Treasury's Summers Says 'Long Way to Go' to Resolve Asia Economic Crisis
Summers Says 'Long Way to Go' to Solve Asia Crisis (Update2) (Rewrites
1st-5th paragraphs and adds that U.S. stocks decline on Asia concerns.)
Milwaukee, Aug. 4 (Bloomberg) -- Asia has a ''long way to go'' to solve
its economic crisis, U.S. Deputy Treasury Secretary Lawrence Summers
said. At the same time, the crisis doesn't threaten to derail the U.S.
economic expansion as long as Japan and other countries take needed
steps to restore their economies to health, he said. ''We have a long
way to go in working through these problems,'' Summers said, answering
questions after speaking to the National Governors Association. Still,
''there is no inherent reason -- if we respond well and others respond
well -- why it needs to pose a threat to the basic momentum of an
American economic expansion,'' he said. ''With a strong response,
particularly if the Japanese take what I think are crucial steps for
them, I think this can remain very much a contained situation,'' Summers
said.
U.S. stocks have dropped for three straight days on concerns that
corporate earnings wouldn't meet expectations -- in part because the
economy is slowing under the weight of Asia's woes. The Dow Jones
Industrial Average has lost more than 7 percent of its value since
rising to a record on July 17.
In Japan's case, the government needs to spend money -- or return it
through tax cuts to consumers for them to spend -- to pull out of
recession. ''Increasing budget deficits through spending -- if the
spending is productive -- or through tax cuts is overwhelmingly likely
to be stimulative'' for Japan, Summers said.
Some Asian nations, such as Thailand and Korea, appear to be getting
their economies back on track, though Indonesia still faces
difficulties, he said. ''There is a sense the situation is coming under
more control in Korea,'' he said.
At the same time, he said, ''largely for political rather than economic
reasons, the situation in Indonesia is more serious than it appeared six
months ago.''
In the text of his remarks, Summers said the Clinton administration is
trying to help restore investor confidence in nations affected by Asia's
financial crisis. ''Our goal is clear: to work to restore stability and
growth in Asia and Russia and prevent further contagion in other
markets,'' he said.
IMF Help Critical
Restoring stability will come with the assistance of the International
Monetary Fund, as well as reform from the governments of the countries
involved, he said, stating the administration's long-standing view. ''A
strong domestic response is the absolute prerequisite for restoring
stability because any amount of financial support that goes into an
economy will flow right back out if policies are unsound and governments
are not credible,'' Summers said.
That response includes: sound monetary and fiscal policies; policies to
strengthen the financial system; and structural reforms to open the
economy, raise transparency and let market forces operate, he said.
Leaders in both China and Japan seem to be taking steps to fix problems
in their respective economies, Summers said. In Japan, the new
government ''has reaffirmed the importance of fiscal action to stimulate
domestic demand and tackling decisively the problems in the financial
sector,'' he said.
To help that process along, the U.S. should help support the IMF, he
said. ''The IMF has been critical to our containment of the Asian
financial crisis to date,'' he said.
The U.S. House of Representatives delayed consideration of an additional
$18 billion in IMF funding requested by the Clinton administration until
September. Some Republicans have sought to limit the funding to $3.5
billion and attach conditions on those funds that would require changes
in the IMF's lending practices and force it to provide more information
on its internal operations.
The administration of President Bill Clinton requested $14.5 billion for
the IMF to boost its existing loan pool and $3.5 billion more for a new
lending fund made up of reserve lines of credit with major industrial
nations.
The Senate in March approved Clinton's request, with conditions attached
the administration said it could support.
Even with the delay, the administration expects Congress to contribute
$18 billion this year to the IMF, U.S. Treasury Secretary Robert Rubin
said last month.
The IMF has contributed about $35 billion to international aid packages
put together to help South Korea, Indonesia, and Thailand replenish
foreign currency reserves which were drained to repay mounting
short-term debts. |
