G-7 Weighs U.S. Plan for Emergency IMF Credit

Finance officials of the world’s most powerful economies Saturday began lining up behind a U.S. proposal to shelter emerging nations from the financial turmoil that has plunged much of the developing world into recession.

At the conclusion of a daylong meeting, the world’s seven largest industrial democracies, known as the Group of 7, issued a statement in which members “agreed to explore” the U.S. approach, which would provide credit for beleaguered emerging nations under financial attack.

Backed by Treasury Secretary Robert E. Rubin and Federal Reserve Chairman Alan Greenspan, the U.S. plan represents an attempt to assert leadership and gain some control over the financial wildfire that has leaped across national boundaries and threatened many currencies.

The G-7 has been criticized for maintaining a global system that in the last year has functioned chaotically, with standards of living falling amid financial turmoil.

However, Rubin said Saturday that, during the sessions, the industrial powers displayed “a sense of energetic commitment to doing all that is sensible” to solve the financial crisis that started in Asia and has spread to different parts of the world.

“I really have no doubt in my mind that the world can and will work its way out of this. But for that to happen, each of us has to work hard,” he told reporters.

In their communique, the seven richest nations cited “weakening growth prospects” in much of the world, the need for “intensified cooperation” to promote growth in each of their countries and the importance of Japan’s moving swiftly to revive its own economy.

But the problem of finding mutually acceptable strategies was clear from their own statement.

“We also agreed that the challenges that face each of our economies differ,” the G-7 said.

The group also said the International Monetary Fund, highly criticized throughout the ongoing financial debacle, remains central to reforms envisioned by the United States and its allies.

“We reiterated our support for the central role of the IMF in enhancing crisis prevention,” the G-7 communique said.

In addition, the nations emphasized support for another pillar of the established order--the World Bank--to play a larger role in providing emergency aid and crisis prevention.

In part, the U.S. plan would provide credit through the International Monetary Fund for emerging nations that find their currencies under attack when investors shift massive amounts of money to other countries.

“He [Rubin] asked me to support it, and I said I would,” Japanese Finance Minister Kiichi Miyazawa told reporters.

President Clinton personally telephoned British Prime Minister Tony Blair and French President Jacques Chirac, and they responded favorably, as have officials from other countries, according to White House spokesman Joe Lockhart.

On a day that was bristling with high-level meetings here about the global financial crisis, the key parley was the G-7 session inside Blair House, across the street from the White House, hosted by Rubin and Greenspan.

In addition, the IMF and World Bank are holding annual meetings in which officials are struggling to reconsider policies that have been fiercely assailed in the ongoing financial crises.

“As we meet here in Washington, we are conscious that more than a quarter of the world is in recession, that the second-largest economy in the world, Japan, is in recession--and that the social casualties of the Asian crisis are rising in numbers,” British Chancellor of the Exchequer Gordon Brown told reporters before the first of the G-7 meetings began.

While Rubin on Friday said the U.S. was essentially proposing that the IMF have the ability to provide “a line of credit” to beleaguered developing nations when they need it, Canadian Finance Minister Paul Martin on Saturday described the measure as a “crisis prevention fund.”

Martin and Brown tentatively endorsed the U.S. approach, although Martin noted that other financial reforms would be useful, including improvements in the IMF’s procedures.

“There is a growing consensus on what needs to be done,” he said.

Mexico’s finance minister, Jose Angel Gurria Trevino, said the U.S. plan is “sorely needed. . . . The contagion has affected Latin America very badly.”

U.S. officials are proposing no new source for emergency IMF funding, other than the fund’s budget, which has largely been exhausted because of emergency bailouts in the ongoing series of crises in Asia, Russia and Latin America.

The House of Representatives has resisted White House pleas to approve $18 billion in funding.

In addition to the search for some global approach to bolstering economies, special attention was focused on Japan--whose recovery is seen as the most important element for global economic health--and on Brazil, potentially the next victim.

U.S. officials were lobbying the IMF and others to support a bailout for Brazil, perhaps in the $30-billion range, which could be announced soon after today’s presidential election there.

Japan’s role in boosting its own economy and the economies of its battered neighbors also came under scrutiny.

U.S. and Asian officials endorsed a $30-billion Japanese plan to stimulate the region’s financial health. It would be made up of loan guarantees and interest-rate subsidies targeted at some of the hardest-hit countries in Asia, including Indonesia, South Korea, Malaysia and Thailand.

Miyazawa also repeated support for the creation of a regional Asian fund. Such a proposal by Japan sparked sharp criticism last year on the grounds that it would fail to reform the sort of “crony capitalism” and entrenched local problems that have come to haunt the regional economies and would make recovery much more difficult.

“It is important to help Asian nations by boosting Japanese imports from the region,” Miyazawa said of a regional funding approach.

Unless the Asian economy recovers, Japan’s economy will not recover either, he said.

But the less-controversial $30 billion in aid was greeted with support by some who would be its beneficiaries.

“It’s exactly what we need,” Thai Finance Minister Tarrin Nimmanahaeminda told reporters.

A group representing 128 developing nations also joined a worldwide chorus urging Japan to overhaul its own budget policy and banking system--changes that U.S. officials maintain are vital to the world’s economic health.

The coalition--including Brazil and Mexico, which have been threatened by the spread of the financial crisis beyond Asia--seeks a stronger voice in the debate.

Coalition members also suggested that advanced nations lower interest rates as a strategy for calming international investors and stabilizing the wild stampedes of capital.

The varied prescriptions only made clear how daunting the policy challenges remain--and no one was predicting a quick fix for the world’s ailing financial system.

“My guess is we won’t find a silver bullet, but we will come out with a process,” World Bank President James Wolfensohn said.

Times staff writer Chris Kraul contributed to this story.