<<NEW YORK, Oct 2 (Reuters) - Germany's Bundesbank on Friday warned the world against betting on quick-fix solutions to end the global economic crisis, and said sound domestic policies were the best recipe for a solid world financial system.
Bundesbank President Hans Tietmeyer also said interest rates for the block of European nations ready to join currency union in January, 1999 could converge ''comparatively close to the present low interest rates'' of France and Germany.
But Tietmeyer, in the United States for a weekend meeting with finance ministers and central bankers from the Group of Seven most industrialized nations, said calls for across the board rate cuts as a one-size-fits-all policy were unrealistic.
''It would be shortsighted to urge a country or currency area to relax monetary policy more than is reasonable internally,'' Tietmeyer told a conference on Latin America, sponsored by the Wall Street Journal.
As investors fear a sharp global economic downturn and world financial leaders have suggested a series of often incompatible possible steps to end the crisis, Tietmeyer offered an old-fashioned recipe for success.
Insisting that ''financial crises are not an ineluctable fate,'' Tietmeyer said sound internal policies with little international meddling would work best, while the United States hinted at a new plan to send money to battered economies.
President Bill Clinton seized the initiative before next week's International Monetary Fund and World Bank meetings and promised the new facility would ''provide contingent finance to help countries ward off global financial contagion.''
Tietmeyer on the other hand warned against ''throwing the baby out with the bathwater'' and said general principles of the current system remain correct ''as long as they are applied coherently.''
At the same time he stressed, ''It cannot be said often enough: internal policies must be in order ... They are, so to speak, both the foundations and the supporting pillars.''
Tietmeyer dismissed calls from some Asian nations for tighter capital controls, arguing that unrestricted flows have been instrumental for economic discipline.
While nations are free to adopt policies as they see fit, Tietmeyer cautioned that capital controls may invite financial markets to try to circumvent such controls, particularly as "markets are (mostly) more inventive than the controllers.
''Controls of capital outflows are of a different nature. They may directly attack investors' confidence,'' he warned.
Talk about rates suggested to analysts that the Bundesbank will not lower rates anytime soon after the Federal Reserve on Tuesday eased monetary policy for the first time in nearly three years to shield the U.S. economy from the global crisis.
The Fed trimmed its key short-term interest rate by one quarter of a percentage point to 5.25 percent at a time whenGermany's short-term rate is near 3.30 percent and the Bundesbank has little freedom to maneuver rates.
In Germany, Bundesbank council member Edgar Meister told television that a rate cut does not always lead to economic stimulation.
Tietmeyer also said currency boards, sometimes prescribed to prevent hyperinflation, may make little sense for nations still in transition. Currency boards limit the flexibility of monetary policy by fixing a foreign currency against the dollar and backing it with foreign reserves.
A currency board is ''credible only if the domestic financial sector is sound enough to stand a temporary monetary contraction if the need arises. That scarcely seems to be the case in Russia at the moment,'' Tietmeyer said. >> |
