WASHINGTON -- The world economy has avoided economic calamity so far from Asia, although there is still a chance a second round of instability could have "unexpectedly large negative effects," Federal Reserve Chairman Alan Greenspan said yesterday.
"We are about as concerned now as we were back in February," Greenspan told the House Agriculture Committee. While the situation in Asia has improved, "it's still a sufficient concern at this particular point," he said, "because we don't know the ultimate outcome."
The minutes of the Fed's March 31 meeting, released yesterday, showed members of the policy-making Open Market Committee were concerned Asia might not provide the drag on U.S. growth they expected. At the meeting, the minutes showed, the central bankers adopted a bias toward higher interest rates.
The effect of the Asian crisis on the economies of industrialized nations, including the United States, appears to be small so far, Greenspan said. Still, he cautioned, that could change. The impact on the affected Asian countries "as well as on our own economy, are only now just being felt," Greenspan said.
Treasury Secretary Robert Rubin said that, while it's true the risk of contagion from the Asian crisis "has so far largely been contained," the effects have begun to "directly affect" the U.S. economy, with exports to the countries involved down about $23 billion in the first quarter. "That is likely to worsen in the months ahead," Rubin said.
Greenspan and Rubin did not expand on the implications for monetary policy or the current state of the U.S. economy. They appeared before the committee to make the case for the Clinton administration's request for an additional $18 billion for the International Monetary Fund.
Commenting on Indonesia, Rubin blamed the problems there directly on former President Suharto's "mishandling of the crisis." While he didn't address Suharto's resignation, in the text of his remarks he called for "restraint" in Indonesia.
Greenspan said it's too soon to tell whether Indonesia's new leadership will help resolve that nation's crisis.
"We have to wait and see what type of policies emerge and what type of political and economic structure comes out of what has truly been chaos," Greenspan said in response to a question during testimony to the House Agriculture Committee.
Greenspan said he hoped the IMF wouldn't need additional money. Still, he said, "it is better to have the IMF fully equipped if a quick response to a pending crisis is essential," emphasizing a point he has made in other Capitol Hill appearances in recent months.
The IMF put together more than $100 billion in aid packages for Thailand, South Korea and Indonesia to help them repay short- term debts and replenish foreign currency reserves.
As a result, Rubin said, "the IMF's normal financial reserves are approaching a historically low level, and the IMF does not have sufficient funds to deal with a truly major crisis." It's in the nation's economic interest "to have that vulnerability exist for as little time as possible," Rubin said.
The issue of IMF funding is relevant to the Agriculture Committee because international aid is seen as vital to Asian importers who buy U.S. farm goods. Asian countries accounted for about 40 percent, or $23 billion, of total U.S. farm sales last year.