Economic Leaders Differ in Strategy on Crisis--good summary
By DAVID E. SANGER
ASHINGTON -- As financial leaders from the world's major economies, as well as from many of the most shell-shocked, gathered Saturday for talks, the Clinton administration faced unusual challenges from Europe, Japan and emerging-market nations, which are all arriving with different and even contradictory strategies for stabilizing the global economy.
The clash of approaches, which began to play out as Treasury Secretary Robert Rubin sat down Saturday morning with Japan's finance minister, Kiichi Miyazawa, reflects both the extraordinary tension and the behind-the-scenes power struggles under way as the International Monetary Fund and the World Bank open their annual meeting here.
After months of market plunges, currency devaluations, bank failures and bankruptcies around the globe, governments are searching desperately for some kind of coordinated approach that can halt some of the most virulent economic turmoil in half a century.
But it will not be easy, officials concede. As the meetings opened, Miyazawa announced a $30 billion Japanese program to aid stricken countries throughout Asia. The program includes government loans, the purchase of bonds issued by Asian nations and guarantees that private bank loans will be repaid.
While Southeast Asian countries immediately hailed the move, the Clinton administration's response was lukewarm. Rubin had said on Friday, even before the announcement, that Japan's action was "constructive," but that getting its own banks in order and its huge economy restarted was "by vast multiples more important."
Miyazawa, a former prime minister who has 40 years of experience dealing with the United States, shot back Saturday that President Clinton's proposals for new strategies on how the IMF could choke off crises before they start "would not be very convincing unless the United States' commitments to the IMF are lived up to."
He was referring to Congress' refusal so far to approve $18 billion in new money for the fund, an issue that Senate and House conferees will be debating as the meetings go on here this week.
President Clinton will take the unusual step of participating directly on Monday in a critical meeting of finance ministers and central bankers from 22 nations. And on Tuesday he will speak to the entire IMF, which represents 182 nations, in his second major speech on the world economy in three weeks.
Clinton set the urgent tone of the meetings on Friday, when he declared that the world was on a "financial precipice." But Clinton, who last spring was resisting advice that he become far more publicly involved in managing the world's financial chaos, insisted that it was not too late to act.
"We don't have to have a worldwide recession if those of us that enjoy growth will take the initiative and move now," he said at the White House.
A dramatic initiative to stop the financial contagion may come within days as the IMF, the Treasury Department and Brazil's finance minister, Pedro Malan, put the final touches on a package of $30 billion or more to stabilize the Brazilian economy.
Rubin met with Malan at the Treasury late on Friday, and there was considerable speculation that the package could be announced as soon as voting is completed on Sunday in Brazil's presidential election. The vote is expected to result in the re-election of President Fernando Henrique Cardoso.
Clinton administration officials say they fear that a financial meltdown in Brazil would take the rest of Latin America with it, and bring the crisis to the United States' own borders.
Nonetheless, the cacophony of competing ideas suggests that it will be extraordinarily difficult to get nations facing a varied array of problems -- deep recession and mass unemployment in Southeast Asia, political paralysis in Russia and Indonesia, huge bank failures in Japan, an incipient currency crisis in Brazil, but continued prosperity in Western Europe and the United States -- to settle on a common agenda.
The United States, for example, is insisting that there be no backing away from a decade-long move toward freer and more open financial markets around the world.
But the Japanese and Southeast Asians are talking about "capital controls" that would reimpose government regulation preventing investors from moving billions in short-term investments from one country to another with a few taps on the computer keyboard.
The French, meanwhile, want to increase the power of the committee that oversees the IMF, while Russia is threatening to default on its loans unless it is quickly given billions that the fund suspended when President Boris Yeltsin fired his team of economic reformers and violated the terms of his accord for Western aid.
A senior IMF official said last month that Russia's threats are "a form of blackmail, but the enormous turbulence touched off by the Russian financial debacle in September gives real teeth to Russia's threats.
Clinton and Rubin are hoping to craft their own strategies to calm the financial markets and keep the worst effects of the recession from hitting U.S. shores, where exports and corporate profits are already badly affected.
The most immediate of those strategies would allow the IMF to launch pre-emptive strikes to bolster the finances of fundamentally healthy economies where the global economic contagion seems likely to hit next.
Currently the fund intervenes with billions in emergency aid only after disaster strikes and investors are fleeing. But by that time, the country's currency is already under heavy attack, and putting together a bailout can cost far more and often involves austerity measures -- from budget cuts to sky-high interest rates -- that lead to soaring unemployment and political backlash.
The administration's proposal will first be debated by the Group of Seven industrial nations and then, if it gathers much support, by a larger meeting of 22 nations, including most of the major emerging markets.
But a senior Japanese official noted Saturday that the president's plan "seems aimed mostly at Latin America" and probably would "not meet a lot of enthusiasm in Europe and Asia."
Meanwhile the Europeans are debating how to respond to calls from Washington for a lowering of interest rates, a step Japan and the United States have already taken -- though with the most modest of reductions.
Gordon Brown, Britain's finance minister, hinted late in the week before last that London may follow suit. But Germany, traditionally far more concerned about inflation, has declined to follow suit. The German government is playing an unusually small role here as its incoming chancellor, Gerhard Schroeder, prepares to assemble an economic team.
The Southeast Asian nations -- which only five years ago were the subject of a much-discussed World Bank study called "The East Asian Miracle" -- arrived here in shock and confusion about what to do next. The first nation to be hit by trouble, Thailand, is mired in difficulties, but looks good in comparison with most of the region's other nations.
Malaysia is suffering economic turmoil, and Indonesia's economy is plunging so deeply into recession that the IMF is backing away from many of its demands on its government.
"In my country," said one Indonesian during a question-and-answer period at the opening session of the meetings here, "IMF means I'm Finished."
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