Rubin Offers Plan for Reducing Global Credit Risks
By DAVID E. SANGER -- April 22, 1999
WASHINGTON -- Treasury Secretary Robert Rubin
outlined a modest five-point U.S. plan Wednesday
for warding off the kind of financial crisis that
rocked three continents over the last two years. He
called for strengthened financial disclosure rules and
guidelines that would "discourage countries from taking
too many risks" when they borrow money.
But Rubin's proposals, which President Clinton endorsed
in a brief talk at the White House on Tuesday, fell
well short of creating the kind of new "global
financial architecture" that many policy-makers debated
in the heat of the crisis in emerging markets last
fall. His ideas were chiefly modifications of existing
rules, more akin to rewiring a building than
reconstructing it.
At no time in his speech in Washington on Wednesday
before the Johns Hopkins School of Advanced
International Studies did Rubin repeat Clinton's
frequent statement last fall that the world was facing
its "deepest economic crisis in 50 years." In fact,
many U.S. and European officials fear that as Asia's
immediate crisis and the threat of economic contagion
have receded, the political momentum for far-reaching
reforms may have been lost.
Clinton warned Tuesday about the dangers of complacency
and the Treasury chief said Wednesday that he was
concerned that in financial markets "even painful
lessons recede from memory with time."
Nonetheless, the proposals Rubin put forward were
infused with his characteristic caution about either
overregulating markets or expanding the powers of the
International Monetary Fund in ways that would signal
investors they could count on being saved if a nation
appeared on the brink of default. The IMF -- which
meets along with the World Bank and the Group of Seven
finance ministers early next week -- has been the prime
instrument for bailing out ailing nations.
The secretary made no mention Wednesday of turning the
IMF into a "lender of last resort" for nations on the
brink of bankruptcy, a proposal that some top officials
of the fund have floated in recent months. "There was a
range of views on that within the Treasury," Rubin
acknowledged in response to a question. But he had
opposed the idea, his aides say, fearing that if
countries knew that the IMF stood ready to prevent
defaults, they would resume the kind of reckless
lending that helped Indonesia, South Korea, Russia and
Brazil get into trouble.
Similarly, he rejected the imposition of any kind of
capital controls, rules that would limit the amount of
money countries borrow, and, in times of crisis,
prevent investors from pulling their money out. Such
regulations, he said, "can be used by politicians as a
substitute for real reform of their economies."
Instead Rubin focused on five areas of reform, some of
which are already under way: forcing lenders to pay a
greater share of the cost of bailing out nations,
discouraging most countries from using fixed exchange
rates, encouraging nations to rely more on long-term
borrowing and less on short-term, disclosing more
information about outstanding debt, and protecting the
poor and middle class during crises.
The first initiative arises from the sharp criticism
directed at both the United States and the IMF that
they bailed out banks and bondholders in Asia by
insuring that they were repaid, but did far less for
workers who lost their jobs.
Rubin said Wednesday that "market discipline will work
only if creditors bear the consequences of the risks
they take." He suggested that in future bailouts, the
bankers and investors who lent money to a country would
have to "share the burden." But he did not say how, and
acknowledged that if the rules were too harsh, lenders
would steer clear of developing nations.
He was clearer about exchange rates. "At the center of
each recent crisis," Rubin said, "has been a rigid
exchange-rate regime that proved ultimately
unsustainable," a reference to the efforts by many
Asian nations and Russia to peg their currencies to the
dollar. He argued that the IMF and individual nations
should no provide money to help a country defend a
fixed exchange rate, except in rare circumstances.
Rubin cautioned countries like Argentina that are
considering adopting the dollar as their currency, a
step many nations see as a way to bring stability to
their economies. He said they would be giving up
virtually all domestic control over monetary policy,
which would be set by the Federal Reserve.
And he warned that the Fed would manage the dollar to
fit U.S. economic interests -- and no one else's. It
would not help supervise foreign banks, he said, or
change interest-rate policy to fit another country's
needs simply because it had adopted the dollar.
Rubin was particularly careful in dealing with the
question of how to manage the $1.5 trillion that races
around the globe each day in currency transactions,
purchases and investments. Saying governments "must do
a better job of managing their own debt," he warned
them against borrowing too much short-term cash, rather
than paying more for long-term borrowing. Many nations
found that, once their currencies were devalued, they
could not meet the short-term debt payments.
Rubin said that in some cases rules should be adopted
to "limit banks' foreign currency exposures." But he
did not describe those rules. And while he warned
nations against excessive borrowing, he said the best
way to deal with the problem was to require countries,
banks, securities houses and hedge funds to disclose
more data about how much debt they are carrying.
He suggested that Clinton's Working Group on Financial
Markets, which he helps direct, would soon recommend
tighter disclosure rules for hedge funds like Long-Term
Capital Management, which had to be saved last fall
from a multibillion-dollar default. Investigations
showed the lenders to Long-Term Capital did not
understand how much money the fund had quietly
borrowed.
Copyright 1999 The New York Times Company |
