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To: Alex who wrote (20606)	10/4/1998 6:08:00 PM
From: goldsnow	Respond to of 116762

Ideas Compete On Revamping Global System 04:59 p.m Oct 04, 1998 Eastern By Adam Entous WASHINGTON (Reuters) - Financial leaders concurred Sunday that the world's economic system needed to be fixed and then delivered a ragbag of ideas on what to do. Ministers in Washington for annual meetings of the World Bank and International Monetary Fund disagreed over whether capital flows should be regulated and over the extent of the changes needed at existing institutions. ''Strengthening the response to the current crisis and creating a modern framework for the global markets of the 21st century will not be easy or quick, but we must continue to move forward with care and seriousness,'' U.S. Treasury Secretary Robert Rubin told the IMF's policy-making Interim Committee. The IMF/World Bank meetings run until next Thursday and take place against mounting risks of an economic slowdown. Financial problems which started in Thailand in July 1997 have spread across Asia to Russia and are threatening Latin America, raising questions about the IMF's ability to deal with the crisis and about the logic of free capital flows -- long a cherished goal of the IMF and the United States. Some countries, notably France, think more controls on the movement of money should be considered to stop investors from undermining economies by pulling their money out too rapidly. The United States and the IMF oppose curbs on capital movements and see improved financial market regulation, accounting rules and corporate law as the answer to strengthening financial systems. French Finance Minister Dominique Strauss-Kahn told the committee that countries needed more effective ways to control the flow of capital into and out of emerging market economies. ''Adequate monitoring of short-term capital flows, founded on market-friendly rules, and relying for example on tax provisions, should certainly not be considered taboo,'' he said. ''We must consider that exceptional circumstances may render emergency financial safeguard measures inevitable.'' Japan's deputy finance minister, Sadakazu Tanigaki, disagreed. ''Capital controls could discourage investor confidence, hamper beneficial capital inflows, such as foreign investment, and could also damage efficiency in the national economy,'' Tanigaki, Japan's State Secretary for Finance, said. He said traditional IMF recipes might not be appropriate for a crisis like the one in Asia, noting that Asia's problems stemmed from loss of confidence and capital flight rather than traditional balance of payments problems. ''The Fund's traditional prescription, which combines fiscal balance improvement with tightening of monetary policy, is no longer appropriate in every instance,'' he said. But officials were vague on what the IMF should do and on how it should do it. Brazil has been the latest country hit by capital flight, and Finance Minister Pedro Malan has met senior officials from the IMF and the U.S. Treasury during his visit to Washington. Malan told the Interim Committee that international financial institutions should come up with ''contingency funding'' for country's facing liquidity problems -- a sort of reserve fund which countries could tap if needed. ''The IMF must devise a crisis prevention strategy,'' he said. But new funding vehicles for institutions like the IMF have had a cool reaction from Germany, Europe's biggest economy, which sees the solution to the financial turmoil in countries getting their own economic houses in order. In addition, Bundesbank President Hans Tietmeyer has argued for strengthening existing international financial institutions rather than changing them, calling Sunday for an expanded IMF role to include monitoring of capital movements. The deliberations over the issue have confused many countries whose economies have been damaged by capital flight and encouraged some to turn their backs on world markets. Mustapa Mohamed, Malaysia's second finance minister, said he was disappointed by the discussion and said the lack of direction had vindicated his country's decision to impose capital controls to protect its economy. ''Our position is that as long as the international architecture is not changed radically, as long as that is not done, it will be very difficult for us to insulate our domestic economy from the vast international economic developments,'' Mustafa told reporters. Copyright 1998 Reuters Limited.

To: Alex who wrote (20606)	10/4/1998 6:14:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116762

G7 Fails To Take Charge On Global Crisis 05:00 p.m Oct 04, 1998 Eastern By Knut Engelmann WASHINGTON (Reuters) - Financial leaders in search of bold solutions to global economic chaos wrapped up another weekend of talks Sunday, offering little more than vague promises and conflicting ideas on what they should do next. As the failure of Group of Seven finance ministers and central bankers to produce decisive action and present a united front against the threat of a cross-border financial meltdown slowly sunk in, analysts said jittery world markets were set to react with shrill disappointment when they reopen Monday. More than six hours of closed-door talks among members of the exclusive G7 club produced a commitment to boost growth in their own economies and help those less-fortunate nations whose economies have already been consumed by the global firestorm. That was about as much as the world's financial powerhouses managed to agree on. Offers of concrete action, such as a joint cut in interest rates to boost growth and give ailing markets a much-needed shot in the arm, were conspicuously absent from a carefully-worded statement released after their meeting. ''The G7 hasn't really done anything useful or constructive for the last decade, so nobody should be too disappointed about this,'' said Adam Posen, an economist with the International Institute for Economics, a Washington-based think tank. The financial leaders of the United States, Japan, Germany, Britain, France, Italy and Canada warned that the crisis now gripping Asia and many other emerging markets was posing a mounting downside risk to their economies. Washington urged both Europe and Japan to do their part for global stability. U.S. Treasury Secretary Robert Rubin, in charge of the fortunes of the world's biggest economy, said G7 leaders sensed the urgency of doing something -- anything -- right away. ''The (G7) had ... a very energetic consensus that the balance of risks in the global economy has shifted and that the immediate need is to strengthen growth and sustain capital flows in emerging markets,'' he said. While the group pledged to ''explore'' a broad new U.S. plan to provide struggling countries easier access to fresh capital before they get overwhelmed by economic turmoil, a much-hyped Japanese idea to offer its ailing neighbors some $30 billion in emergency aid did not even get a mention in the G7 statement. Also absent from their communique was any direct reference to monetary policy that so many in financial markets had been hoping for as a sign of the G7's seriousness about bolstering the ailing world economy. After the United States cut official interest rates last week, calls for similar, coordinated steps by other G7 members had become increasingly loud. But most Europeans, already under fire from Washington for their sluggish growth rates and sky-high unemployment, have insisted there is no need for them to cut rates right now. Germany specifically has resisted such calls, arguing its rates are already at historically low levels and that a rate cut would complicate the process of bringing Europe's rates to a common level ahead of the continent's monetary union. European countries wanting to join the single currency by January 1999 have to reach a common interest rate level by the end of this year. Britain, which has no plans to join the single currency for now, also poured cold water on the idea of joint rate cuts. ''Just because monetary policy in a variety of places may now have to be easier than it otherwise might have been, this does not necessarily mean coordinated cuts in interest rates,'' Bank of England Governor Eddie George told reporters. Signaling the depth of the fault lines running between Europe and the United States, the G7 text explicitly referred to the European's insistence that every country should go its own path. ''We also agreed that the challenges that face each of our economies differ,'' the statement stated dryly. The strained relations between Washington and Tokyo, capitals of the two top world economies, also showed few signs of improvement following the high-level talks as the G7 urged Japan once again to pull itself up by the bootstraps and get its ailing, debt-ridden financial sector sorted out. The mounting troubles in Brazil, widely feared to be the next country to fall prey to the global financial wildfire unless the IMF, helped by the G7, comes up with a rescue package soon, similarly failed to evoke much reaction among the financial leaders -- at least in their public statements. It will be early next year before the ministers and central bankers are scheduled again. Britain said they may meet again this year if they make progress on lofty plans to reform the world's creaking financial system. ''Until we see real action from the G7, the markets are not going to react positively, even though the intentions have been moving in the right direction,'' said Anthony Chan, chief economist at Banc One Investment Advisors in Columbus, Ohio. ''But unfortunately they haven't been matched by action.'' Copyright 1998 Reuters Limited