Rubin Proposes Modest Changes in Finance System

The Clinton administration on Tuesday proposed modest changes in the international financial system designed to help prevent the kind of economic turmoil that has enveloped several Asian countries in recent months.

The package, outlined in a speech by Treasury Secretary Robert E. Rubin, includes measures aimed at forcing big international banks and other investors to assume greater losses when they have made shaky loans--a politically charged issue in Congress.

The proposals, all incremental and some fairly technical in nature, are expected to be discussed by the world’s finance ministers in connection with this week’s annual meeting of the 182-country International Monetary Fund here.

Today, Rubin and his counterparts from the United States’ six major trading partners will discuss the issue and Thursday the plan will go to a group of 22 finance ministers charged with hammering out a consensus on key elements.

Rubin also called on Congress to approve the administration’s proposal to expand the United States’ line of credit to the IMF by $18 billion in an effort to help replenish the organization’s lending resources in case of another major financial crisis.

Although the probability of such a crisis is low, Rubin said, every day that the IMF continues to be underfinanced “is another day of vulnerability for American workers, farmers and businesses.”

He said Congress “should act and . . . act now.”

In general, the package Rubin outlined centers on taking steps to bolster the existing financial system by encouraging countries--particularly so-called emerging-market nations such as those in Asia--to strengthen their own regulation of domestic banks and finance.

Its major elements:

* Providing more economic and financial data to the public about developing countries’ economies so investors have ample warning of potential risks.

* Strengthening how these countries regulate their financial systems by adopting global standards for banking supervision and having the IMF monitor each country’s effort to meet them.

* Eliminating the built-in protection now given to banks that make bad loans. The IMF no longer would be asked to help ensure that borrowers repay banks on time. Instead, banks would be prodded to negotiate their own debt-rescheduling deals.

Rubin also suggested that the major industrial nations help enforce the proposed changes by refusing to allow banks from emerging-market countries into the program unless their home countries comply with accepted international regulatory practices.

The U.S. plan conspicuously avoids proposals that would seek to control or rein in unstable markets--reflecting Washington’s belief that the Asian crisis was caused more by the region’s financial practices than flaws in international markets themselves.

Rubin and other officials have suggested that the Asian crisis was caused by a combination of secretiveness in Asian financial dealings, poor regulation and so-called “crony capitalism,” which eschews Western-style arm’s-length transactions.

International officials said it is not yet clear whether the other finance ministers would accept Rubin’s proposals as is or make substantive changes. Some finance ministers are expected to propose additional measures.

On another issue, Rubin again urged Japan to do more to stimulate its domestic economy but cautioned that it may be premature to criticize Tokyo’s latest economic package as inadequate--at least until officials see the details of the Japanese plan.

A similar approach was taken on Tuesday by Michel Camdessus, the IMF’s managing director, who has joined Rubin in calling for Japan to act. Both fear that if Japan’s economy continues to weaken, it could exacerbate the crisis in Asia.