New York Times, October 7, 1998
By David E. Sanger
WASHINGTON, Oct.6-- As President Clinton argued anew today that "we must find a way to temper the volatile swings of the international marketplace," the president of the World Bank publicly broke with the approach that the United States and the International Monetary Fund have taken in managing the global crisis.
In a speech to the finance ministers and central bank governors from 182 nations meeting here, James D. Wolfensohn, the World Bank president, said that in the rush to stabilize currencies and bring about economic reform, too little attention was being paid to the growing ranks of unemployed and the risks of undercutting political stability. "The poor cannot wait on our deliberations," he said.
Mr. Wolfensohn's warnings underscored the extraordinary dissension and disagreements at this year's meetings of the World Bank and the International Monetary Fund over whether the strategy for stopping the global turmoil has been misguided.
While the fund and the bank often disagree privately, today's speech brought into the open months of tension between the two sister institutions over the right strategy for dealing with the crisis. The tension is so great that Treasury Secretary Robert E. Rubin said today that the two huge institutions must settle their many differences.
Little progress was made today on forging short-term solutions. President Clinton, in his second speech on the world economic crisis in two days, repeated his proposal that the major nations of the world set up "precautionary lines of credit" that would help countries that are taking the needed tough economic steps but nonetheless are caught up int he wave of financial turmoil.
The Clinton Administration also said today that it was holding preliminary discussions to schedule an emergency economic summit meeting in London next month, as suggested by Prime Minister Tony Blair of Britain.
The meeting, if it takes place, is intended to follow up on some of the few concrete recommendations to have emerged from this meeting. There is clear consensus for one: a series of global rules on "transparency," requiring countries to make public reports of far more infomration about their foreign currency reserves and other data that would tip off investors that trouble might be brewing.
There is far more dispute, however, over whether those rules would also apply to private entities, especially hedge funds, the huge investment pools that are blamed by many for exacerbating the crisis with huge bets on the currencies of small countries. NOr is ther agreement yet on rules that would force big lenders to pay a far greater share of the burden of bailing out a country.
"What we want to focus on are funds that attack a currency with a view to toppling it," said Sir Donald Tsang, the finance secretary of Hong Kong. But he said there was still considerable argument over how far governments should go in such regulation. "The debacle at L.T.C. helped," he added. referring to Long Term Capital Management, the Greenwich, Conn. hedge fund that requried a Wall Street bailout two weeks ago. "Suddenly there was a recognition in this country that we are all in the same boat."
Wolfensohn, an Australian-born former investment banker known for speaking his mind, painted a bleaker picture than did IMF managing director Michel Camdessus.
"We are not in 1928," Camdessus declared Tuesday, with his very comparison sending a chill through the vast hotel ballroom where the officials of the 182 nations were meeting.
"If we keep a steady nerve, if all countries pursue stability," he insisted, the world will not slip into recession and "this crisis can be overcome." But he insisted that the burden of economic reform falls on individual nations. And he made specific reference to Russia, saying that the IMF could not resume funding to the country until its new government embraces reforms.
Wolfensohn's criticism of the IMF's to the crisis echoed a frequent criticism heard during the meetings: that the focus on stabilizing currencies and balancing budgets, the usual IMF prescriptions, was causing far too much pain to the poor and the middle class. Wolfensohn contended that with millions of people slipping below the poverty line in Indonesia and with many Russians unable to afford basic commodities, the risks of political upheaval are greatly increased.
"If we do not have greater equity and social justice, there will be no political stability," he said. "And without political stability, no amount of money put together in financial packages will give us financial stability."
He argued that before the world can turn to building what the Clinton administration calls a "new international financial architecture," it must adjust its approach to the crisis so that "mathematics will not dominate humanity.''
Without building political support for the bailout programs that have led to government austerity and unemployment, Wolfensohn said, "we may build a new international financial architecture. But it will be a house built on sand."
Wolfensohn's critique struck to the heart of the complaints from many nations -- especially Indonesia and Russia -- that have found fault with the Fund's priorities. But officials of the IMF and the U.S. Treasury -- which strongly influences its policy -- say that Wolfensohn has not come up with alternatives that would reform sick economies fast enough.
"It's easy for the bank to play the good guy," said one finance minister in Washington on Tuesday, speaking on condition of anonymity, "because helping the poor is a lot more popular than convincing the Russians to collect their taxes and crack down on corruption."
Other officials here, though, describe the problems differently. At a meeting of 22 nations with Clinton on Monday night, Thai Finance Minister Tarrin Nimmanahaeminda tried to focus the discussion on short-term issues that need immediate attention.
"The first is the drying up of all investment in the emerging markets," he said in an interview this evening. "And the second is spurring growth in the largest countries," which buy the goods of Thailand and other nations. Tarrin said that Clinton led "a very good discussion," but that "we didn't get very far on anything."
European nations, Tarrin and other Asian leaders said, are complacent, since they have been hurt the least by the global troubles. He said they are immersed in the launch of their common currency, the Euro. The spending limits European countries have placed on themselves to make the currency strong has limited their ability to spend more money to stimulate their economies, Tarrin noted.
And Clinton, he noted, is also limited, by his continuing effort to get Congress to approve $18 billion to support the IMF.
"This has been a big limit on the U.S." Tarrin said, because it has prevented Clinton from proposing any short-term cures that involve spending more U.S. funds.
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