World finance leaders bank on a united front IMF meeting: Urgency shrouds plans to prevent regional recession from growing into global meltdown.

October 05, 1998

NEVER have the International Monetary Fund and World Bank annual meetings, where finance ministers and central bankers gather, conveyed such urgency as does the ritual this week in Washington.

The object is to contain financial contagion, which has one-third of the world facing recession, and protect uninfected economies. Those remaining healthy but at risk include the United States.

President Clinton is proposing to double the standby emergency funds the IMF has to lend, and Germany has immediately offered to pay its share. U.S. leadership is sought by all but will be doubted if Congress, which has withheld action, does not make $17.9 billion available quickly.

LTC Objections to IMF policies are growing. Malaysia's strongman, Mahathir Mohamad, has clamped controls on his own economy in defiance of IMF wisdom. A number of U.S. economists echo this view. Their criticism is really of Treasury Secretary Robert Rubin's dominant role in IMF corridors. It is also criticism of the long-standing U.S. bipartisan support of IMF as a stabilizing force in the world economy.

Calls to overhaul international financial machinery, which has served the world well for a half century, cannot be accomplished overnight. The leading ideas, besides greater emergency loan availability, are mechanisms for suspending debt repayment without default, coordinated national interest rate reductions to spur growth, special bailout programs for Asian countries and Brazil, and greater disclosure of financial information.

What cannot realistically be stopped are capital flows across borders in an era of offshore banking, electronic transfers and Internet data transmission. Nor can the world community force Japan into domestic economic stimulation if Japan remains politically incapable of taking the steps required.

The United States comes in for its share of criticism. World markets reflected disappointment at the modesty of the Federal Reserve system's interest rate reduction last week. The collapse of a giant hedge fund, which used Nobel Prize-winning computer software to gamble recklessly on future values, suggested that some lessons of the 1929 stock market crash have come unlearned.

Regulations put in place after that calamity need updating. Disclosure for such funds, and controls on investments in them by such regulated investors as banks, are needed. Washington cannot merely lecture others without looking to its own.

Recriminations have a useful role in post mortems but, first, the world must adapt the institutions it has to the crisis of the day. That requires enough agreement to inspire confidence and nations living up to their commitments.

For the United States, it starts with the $17.9 billion that Congress so far has refused to make available.

Pub Date: 10/05/98

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