IMF meetings end gloomily, but promises for Brazil
Reuters, Thursday, October 08, 1998 at 20:35
(Adds Camdessus comments, news on Brazil talks)
By Janet Guttsman
WASHINGTON, Oct 8 (Reuters) - Gloom about growth dominated
World Bank and International Monetary Fund meetings this week
but a promise on Thursday to help embattled Brazil showed new
resolve to prevent the global crisis from getting out of hand.
The mood, worsening as Washington's hot, humid summer was
abruptly replaced by dark clouds and intermittent rain, was
depressed by fear of recession, pleas for lower interest rates
and talk that a global economic crisis had spread beyond
individual countries to threaten the system itself.
But the policymakers ended their talks on Thursday with
promises of backing for an early international rescue package
for Brazil, the latest country reeling from the crisis.
A joint statement from the IMF and the Brazilian government
said the two sides were in talks about a reform program which
could be backed by loans from the international community.
"As soon as we have a formal, full-fledged program in hand,
we will be quick to react. We are able to react very quickly,"
IMF Managing Director Michel Camdessus told a news conference.
Camdessus also insisted the fund's 182 member countries had
agreed on what had to be done to ease the world's financial
woes, even if they had yet to implement all that was needed.
"We have 182 countries in global crisis going together with
an extraordinary sense of cohesion," he said. "We are seeking
consensus and agreeing, forcefully, on what is our basic
approach."
The meetings took place as Brazil, Latin America's largest
economy, struggled to minimize damage from the global economic
tidal wave. Western markets shuddered from the shock and the
dollar dropped almost 20 percent in less than a week before
recovering somewhat.
Camdessus said the dollar's plunge had been "disorderly and
at this stage somewhat inappropriate." He added: "We are in a
situation of crisis, in a situation where rationality is not
the most obvious picture of the market behavior."
The meltdown started in Thailand in July last year and
spread steadily around the world, forcing once-booming
economies to seek billions of dollars in financial aid and
driving growth estimates sharply down.
The IMF, releasing its forecasts at the start of the
meeting, said it expected the world economy to grow just 2.0
percent this year, less than half the 1997 rate and in sharp
contrast with 4.3 percent it forecast just one year ago.
The fund, along with other institutions, had been revising
growth forecasts down steadily since then, and its cautious
April report predicted 3.1 percent 1998 world growth.
But equally worrying for many of the policymakers gathered
in Washington was fear that key tenets of the capitalist
economic system could now be under threat as countries hit by
the financial storm cried out for action to protect the
economies from volatile capital flows.
Malaysia's Second Finance Minister Mustapa Mohamed,
defending capital controls introduced earlier this month, said
the IMF's standard plan of tight fiscal and monetary policies
had only aggravated the crisis in Asia.
"We are victims of the onslaught of speculative capital
flows seeking high returns," Mustapa told the meetings. "The
traditional prescription backfired."
Russia's Finance Minister, Mikhail Zadornov, said countries
like his own had responded to a desperate situation with
desperate measures.
"Obviously when there is a sudden outflow of capital, these
countries find themselves in a desperate situation and are
often forced to take measures that meet with disapproval in the
international community," he said.
Russia devalued the rouble and defaulted on some debts in
August, frightening investors and driving the financial crisis
into its latest, more dangerous phase.
The main recommendations at meetings of ministers from the
industrialized and the developing world centered on the need to
improve transparency and accountability, to strengthen weak
banks and involve the private sector more in solving crises.
A U.S. proposal would create a contingency fund for
countries to use before they got into trouble, but it depends
on money which the Republican dominated Congress has not made
available yet.
Republicans are seeking changes to IMF lending policy
before they will agree to approve the $18 billion of U.S. cash.
These include more transparency at the IMF and curbs on the use
of subsidized loans to poor countries.
U.S. foot-dragging on the funding has already exasperated
its European partners. "The United States must not default on
its responsibility," French Finance Minister Dominique
Strauss-Kahn said.
Copyright 1998, Reuters News Service
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