Crisis Maestro

When global financial markets took a dive last week, threatening to worsen the Asian economic slump, the man in the spotlight was Robert E. Rubin. For 13 months, the U.S. Treasury secretary has been calling the shots on Asia--and has won widespread kudos for it.

Allen Sinai, a prominent Wall Street economist, unabashedly calls Rubin “the best Treasury secretary in American history”--”almost perfect” in managing both the domestic economy and the turmoil in emerging markets overseas. Similar accolades--albeit more restrained--abound.

Other analysts, however, point to slip-ups. They fault Rubin and his team for having been too slow to recognize both the scope and the urgency of the Asian problem and late in moving decisively to deal with it.

Along with officials of the International Monetary Fund, he underestimated the damage that traditional IMF belt-tightening demands would do to countries such as South Korea, whose fragile financial systems needed bolstering before austere economic policies could be safely or effectively applied.

Some critics also say Rubin’s firefighter approach--attacking problems on a case-by-case basis--has left the United States conspicuously lacking broad economic strategies for dealing with Japan, Russia and the U.S. trade deficit.

In an assessment heard frequently these days, Alan Stoga, an analyst at Wall Street firm Zemi Investments, calls Rubin “a first-rate manager of tactics in a framework within which there hasn’t always been a strategy.” At best, Stoga asserts, “he has been reactive.”

Moreover, it may be that Rubin’s biggest challenges lie ahead. What he has achieved so far has been with the help of a booming U.S. economy--a situation only partly of his own making--that has produced millions of new jobs, with little inflation.

But now, as the crisis in Japan intensifies almost daily, the U.S. economy is suddenly slowing and the U.S. trade deficit mushrooming. It’s an environment in which analysts expect Rubin to have much more difficulty maintaining political support for his approach to the domestic economy and the international situation.

“We’re far from being out of the woods on the Asian crisis,” says Robert D. Hormats, a former State Department policymaker who now is vice chairman of Goldman, Sachs & Co., Rubin’s old Wall Street firm. “They’re riding the back of a tiger. It could all implode badly.”

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Rubin, a 26-year Wall Street veteran who had been co-chairman of Goldman Sachs, came to Washington at the beginning of the Clinton administration as head of the White House National Economic Council, a high-level staff job that involved coordinating economic policy.

He moved into his current job when Lloyd Bentsen, President Clinton’s first Treasury secretary, stepped down in January 1995.

Actually, Rubin may have scored his single most important accomplishment while he was still at the White House: dissuading Clinton from busting the budget with campaign-spawned proposals to boost spending for domestic programs.

C. Fred Bergsten, director of the prestigious Institute for International Economics, says that had Clinton been allowed to succumb to his initial political instincts, the federal budget deficit would have ballooned and there might well have been no sustained economic boom.

The markets-conscious economic policy coordinator also squelched the penchant of the new administration’s youthful White House staff to criticize the Federal Reserve--a tempting but dangerous tactic that inevitably backfires by rattling markets and sending interest rates up.

As Treasury secretary, Rubin has cemented the cooperation between the administration and the Fed, having breakfast weekly with Fed Chairman Alan Greenspan and including him in major policy discussions. Although Greenspan is a Republican, their relationship is close.

Despite the garlands for his performance, it’s also true that Rubin has been aided by a measure of luck: The economy has been booming--only partly because of his doing--and there has been no big dollar crisis or oil shock, as there were in earlier decades.

Knowing how to keep financial markets happy is not the only skill that Rubin brings from his Wall Street days. He also acquired an unusual ability to process huge amounts of information, assess the various risks involved and arrive at a firm and clear solution.

A likable, low-key and inherently decent man with a wry, often self-deprecating sense of humor and almost no trace of personal ego, Rubin, who will be 60 on Aug. 29, has earned a reputation as someone who is easy to approach and who appreciates candor and hard work from subordinates.

Insiders say the secretary’s now-frequent strategy meetings often resemble college brainstorming sessions, with more junior aides unabashedly providing frank assessments even if they counter those of higher-ranking officials.

While Rubin scrawls tiny and usually unreadable notes on a yellow pad, the group thrashes out the problem at hand. Eventually, the secretary will broach a tentative decision, then look around the room for dissenters. But by that point, everyone is usually on board.

He’s known for his penchant for dark blue suits and black loafers, and also for padding around in his stocking feet, his tie conspicuously loosened. When he sits, he’ll lean precariously back in his chair--”testing the limits,” one insider jokes.

Rubin, maintaining his links to the White House, is still the only Cabinet member to attend the daily early-morning staff meeting at the executive mansion. Insiders say he is far and away the most influential member of the Cabinet, both with the president and with outsiders.

Rubin’s first major encounter with international economic policymaking came on the day he became Treasury secretary: The Mexican peso crisis reached a crescendo, threatening to drag down other Latin American economies and ultimately jeopardize U.S. economic growth as well.

Rubin eventually put together a rescue package for Mexico that succeeded spectacularly, but not before he damaged relations with Congress by first seeking its approval of a $50-billion bailout, then using Treasury emergency funds when lawmakers said no.

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When the Asian crisis broke with the collapse of Thailand’s currency in July 1997, the administration was slow in recognizing the event’s implications. Washington eschewed a leading role in fashioning a rescue package for Thailand--insisting that job properly belonged to Japan, which had a regional obligation to do so.

Treasury officials later defended their actions by saying they had been held back by a necessity to avoid violating Congress’ restrictions on the use of U.S. emergency funds. But the hesitation damaged America’s image in Asia and undercut U.S. economic leadership in the region.

For South Korea, the Rubin Treasury helped craft an IMF belt-tightening plan that required the government to cut the budget and increase interest rates before the bank would bolster the country’s fragile financial system. The plan had a drastic effect on South Koreans’ welfare.

IMF officials later revamped their demands after the collapse of the initial recovery plan. Critics of the IMF called it an example of how the Fund frequently prescribes the wrong kind of medicine. South Korea had no urgent budget problem; the country’s big weakness was its overextended banks.

Criticisms that Rubin has been too much the tactician and not enough the strategist go not only to the Asian slump but also to other global economic concerns, such as the current economic crisis in Russia and the impact of global trading strains on the United States.

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Although Treasury officials recently urged Japan to spur its domestic economy, a key element in any Asian recovery, Washington has had no long-term machinery in place--such as the yen-dollar negotiations of previous years--with which to exert any real leverage.

The United States stepped in quickly to help negotiate a new IMF rescue package when Russia got into trouble again last month, but critics say the administration could have done more to head off the crisis had it prodded Moscow into making previously promised reforms.

More broadly, analysts complain that the administration has been remiss in developing a coherent strategy for dealing with the United States’ mounting trade deficit. That deficit--although helpful to Asia in the short run--eventually could cause serious political tensions in this country.

Despite Rubin’s clout in Congress, the Treasury Department essentially stayed on the sidelines during the administration’s abortive efforts to push through its fast-track trade-liberalization bill, and the administration has yet to persuade lawmakers to approve legislation to expand the IMF’s coffers.

Finally, critics say Rubin has been less assiduous than some previous Treasury secretaries about mobilizing the Group of Seven--finance ministers and central bankers of the United States and the six other biggest industrial countries--to confront global crises.

Partly as a result, they say, the United States had to go it alone in intervening in the currency markets in June to prop up the Japanese yen. And a Rubin initiative last spring to bolster the global financial system’s response to crises all but fizzled for lack of support.

Treasury officials dispute any suggestion that the department’s performance on the Asian and Mexican crises fell significantly short. Rubin himself contends that the Treasury was aware of the Asian economies’ problems well before the crisis erupted.

Part of the reason the administration did not rush to pour money into Thailand, Rubin says, was that it thought that country “needed a substantial [economic reform] program, and the best way to accomplish this was through the IMF.”

He insisted that the restrictions placed by Congress on the use of the Treasury’s emergency fund “would have, for practical purposes,” precluded any direct U.S. participation to help finance the Thai rescue package .

Despite some setbacks, Rubin is entering the home stretch of his term as secretary with high marks, from people both inside and outside the administration.

He regularly hears rumors that he is about to resign--a move that some analysts have predicted would set off a market slide--and he consistently brushes them aside. “I plan to be here for quite some time,” he said early this month.

To some, the Treasury secretary’s toughest job in the coming months will be following his own act.

“The risk is now on the downside, partially because things can’t get much better,” says Stoga. “How do they manage the problem? That may take some real skill.”

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Rubin’s Six Trials

January 1995; Mexican peso: Peso crisis intensifies; U.S. assembles massive financial rescue package.

July 1997; Thai baht: Thailand devalues its currency, setting off Asian financial crisis. U.S. declines to aid Thailand directly, but helps put together a rescue package through the International Monetary Fund.

September 1997; Indonesian rupiah: Indonesia’s economy collapses; Washington leads an international bailout effort.

November 1997; South Korean won: The won plunges; U.S. Treasury Department takes lead in assembling rescue package, which is renegotiated in December.

June 1998; Japanese yen: The currency tumbles as investors lose confidence in Japan’s economic reform efforts; U.S. buys yen to prop up the currency, pressures Japan to come up with a bolder plan.

July 1998; Russian ruble: Russia begins to slide into a financial abyss; U.S. provides advice, prods IMF into lending to Moscow.