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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Stitch who wrote (3856)	5/25/1998 12:43:00 PM
From: Worswick	Respond to of 9980

My god, you're right!! Further to our conversations here. For Private Use Only GREENSPAN: ASIAN THREAT ISN'T OVER Fed chief, Rubin urge House to bolster IMF funding By Merrill Goozner Tribune Staff Writer May 22, 1998 NEW YORK -- Two of the main architects of the 1990s economic boom warned Congress on Thursday that the Asian crisis still could derail the unprecedented prosperity being enjoyed by millions of Americans. Testifying before the House Agriculture Committee, Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary Robert Rubin suggested that the U.S. has yet to feel the worst effects of the crisis. They implored Congress to pass legislation that will increase the borrowing authority of the cash-strapped International Monetary Fund by $18 billion. Should the crises that enveloped the economies of Thailand, Indonesia and South Korea spread to any other sizable economy, Greenspan and Rubin warned, the agency would not have the resources to stem the collapse. That could set off a global panic. "These occurrences are possible, and the consequences to us could be severe," Rubin said. "We cannot afford to take the risk that such events could start to unfold and the IMF does not have the capacity to try to cope effectively." Greenspan and Rubin told the committee that American workers and farmers have only begun to feel the effects of the Asian crisis. The U.S. can expect soaring trade deficits and slower growth for the rest of the year in large part due to collapsing demand for U.S.-made goods in Asia, they said. Both men expressed their belief that although the odds of a major disruption to the U.S. economy remain low, the crisis is far from over. "Although the tendency in recent months towards stabilization in the East Asian economies is encouraging, clearly those economies are not out of the woods, as recent events attest," Greenspan said. "There was and is . . . a small but not negligible probability that the upset in East Asia could have unexpectedly large negative consequences on Japan, Latin America and Eastern and Central Europe that, in turn, could have repercussions elsewhere, including the United States," he said. "We have begun to be directly affected by events in Asia," Rubin testified. On Wednesday, the Commerce Department reported the U.S. trade deficit for March soared to $13 billion, the highest monthly total since such records have been kept. Analysts suggest economic growth will slow appreciably in the second and third quarters, and that first-quarter growth will be revised sharply lower from the 4.2 percent annual rate previously reported. The slowing economy is probably what persuaded members of the Federal Open Market Committee to hold off on raising interest rates at its meeting Tuesday. At its March 31 meeting, according to minutes released Thursday, the Fed shifted its bias toward raising rates because its members feared that rising stock prices and robust consumer demand would soon be stoking inflation. Details of Tuesday's discussion won't be known until after the July meeting. One side effect of the Asian crisis is falling prices for a wide range of imported goods. Consumer price inflation remains at a generational low. In his testimony, Rubin, the former Wall Street bond trader, stressed the crisis' impact on farmers, noting that nearly 16 percent of all U.S. farm production is shipped to Asia. Demand for those products is tumbling in the wake of currency collapses in Indonesia, Thailand and South Korea and a severely weakened Japanese yen. "On an annualized basis, exports to the key countries were down about $23 billion in the first three months of this year," he said, "and that is likely to worsen in the months ahead. . . . American farmers have a tremendous stake in restoration of economic health in the region." In his most far-ranging comments on the Asian crisis, Greenspan said economic policymakers do not fully understand today's global financial system. Though he praised its ability to "expose and punish underlying economic imprudence swiftly and decisively," he said he regretted its propensity to facilitate "the transmission of financial disturbances far more effectively than ever before." Neither man let bankers and investors off the hook for the crisis. Greenspan suggested the root of the problem in hardest-hit countries was "misguided investments and very weak financial sectors." Rubin added: "We were struck during the Asia crisis by how little rigorous risk analysis was done by many creditors and investors." Still, both strongly urged the House to back the IMF bill. "We need the IMF to help deal with financial instability problems when they occur," Rubin said. "We have not yet put in place the strengthening of the international financial architecture that would enable us in the future to place less reliance on the IMF to deal with potential systemic crises," Greenspan added. "Thus it is better to have the IMF fully equipped if a quick response to a pending crisis is essential." With more than $100 billion pledged by the IMF to bail out the Thai, Indonesian and South Korean economies, a currency collapse of any size elsewhere in the world would bankrupt the agency. The Senate has voted to approve funding. The House leadership has not scheduled a vote on the bill.