World Finance Officials Back Plan to Avoid Economic Crises

A group of 22 finance ministers from rich and poor countries on Thursday endorsed the broad outlines of a U.S. plan for preventing a repeat of the Asian economic crisis, but stopped well short of approving any specific provisions.

After a lengthy meeting, the ministers agreed that the program should include three major components: providing investors with more data about emerging-market economies, strengthening those countries’ banking systems and ending protection for banks against losses on their shaky loans.

However, instead of trying to forge a consensus on specific provisions, the ministers decided to set up separate working groups to discuss each of the three issues, in hopes of hammering out a set of informal recommendations.

Officials said the reform effort will be expanded to include a broad range of other groups, from the IMF itself to the Asia-Pacific Economic Cooperation. The ministers set no deadline for approving any specific recommendations.

Thursday’s session, proposed by President Clinton at a meeting of Asian economic officials last fall, included finance ministers of the seven largest industrialized nations and 15 smaller countries, such as South Korea, that have been hit hard by the Asian crisis.

U.S. Treasury Secretary Robert E. Rubin told the finance ministers that Clinton administration officials believe “the time has come for a more systematic approach” to promoting strong financial systems in both large and smaller countries around the world.

Thursday’s meeting was the group’s second. At the first, convened in Washington in February, officials laid the groundwork for future discussions. This week’s meeting was in conjunction with the spring session of the International Monetary Fund.

The U.S.-led effort reflects the view of the United States and other major industrialized countries that the Asian crisis was caused by a combination of secrecy in financial dealings, poor regulation and “crony capitalism” that results in shaky loans.

Many of the hard-hit Asian countries--particularly South Korea and Thailand--have already taken significant steps to strengthen their banking systems and practices, but Washington wants to set up new machinery to prod other Third World countries into doing likewise.

Conspicuously absent from the group’s communique Thursday was any U.S. suggestion that industrialized nations refuse to let Third World banks do business in those nations unless their home countries comply with accepted international regulatory practices.

Rubin, who unveiled the proposal Wednesday, cautioned then that he was offering it merely as food for thought. He said he was not even sure the United States would be ready to impose such a restriction.

Several high-level international organizations, including the Switzerland-based Bank for International Settlements, have developed recommendations for bolstering the global banking system, but such plans have yet to be put into effect worldwide.

The push to prod big international banks to take more of the losses when the loans they make turn sour has been a major theme in Congress this year. Whereas stock market investors in Asia suffered large losses during last autumn’s plunge, banks have escaped serious setbacks.

Private analysts say the issue is a complex one that poses difficult choices for policymakers, since too big a loss by banks might endanger the entire global economy. But critics say allowing the banks to escape encourages them to make shaky loans.

Rubin also proposed on Wednesday that international economic officials reach an understanding with commercial bankers that would commit them to negotiate with borrowers in any future crises, and officials disclosed Thursday that such talks began last week.

Banking industry officials have already suggested that future loan agreements contain clauses that would let banks and borrowing countries negotiate as a unit to work out agreements for rescheduling shaky loans.