Rallying to Respond to Global Crisis
The United States and its six major economic allies have taken a small first step toward shaping a common approach to containing the global economic crisis, but the countries remain divided over what policies to follow, analysts here said Tuesday.
Although the communique issued by officials of the Group of 7--the United States, Japan, Germany, Britain, France, Italy and Canada--on Monday was touted as opening the door to a coordinated cut in interest rates, it did little more than that, U.S. officials conceded.
While the document--and President Clinton’s speech to the Council on Foreign Relations--asserted that “the balance of risks has now shifted” and that the leading industrialized countries now must move “to spur growth,” the seven have not yet agreed on how to achieve that goal.
Indeed, on Tuesday, Hans Tietmeyer, president of the German Bundesbank--the counterpart of Federal Reserve Board Chairman Alan Greenspan--told reporters it would be wrong to interpret the G-7 statement as a signal of a pending global reduction in interest rates.
Instead, officials said Monday’s communique was intended to show anxious global financial markets that the richer countries now recognize the spreading Asian crisis as a major threat and are working on possible solutions--although they might not have them in hand yet.
Officials who have been closely involved in the G-7 discussions describe the negotiations as a necessary first step.
Henry Kaufman, a veteran Wall Street economist, called Monday’s pronouncements “a belated recognition of a problem that has been there for some time.” What is needed, he said, is action--and fast.
But experts said a close analysis showed that Clinton’s speech broke little new ground. For instance:
* The meetings of finance ministers that the president called for “within the next 30 days” to consider the problem already had been scheduled in connection with the annual meeting of the International Monetary Fund, which is slated, as usual, for early October.
* The G-7’s willingness to tap a special IMF emergency fund--known as the General Arrangements to Borrow--to help rescue Brazil and other Latin American countries that might be caught in the Asian “contagion” already had been signaled by the IMF on Friday.
* International efforts to find ways to strengthen the “architecture” of the global financial system--by shoring up the financial structure in developing countries--began a year ago in the Group of 22, which comprises finance ministers from affected governments.
* Clinton’s demand that Congress approve an $18-billion line of credit to serve as the United States’ share of a global replenishment of IMF lending resources is the same call he has made for months, with little effect on lawmakers.
* Finally, the president’s assertion that “the balance of risks has now shifted” to the point where the rich countries should aim at spurring more growth rather than continuing to fight inflation essentially parallels Greenspan’s pronouncement of two weeks ago.
Still, the effort--as a first step--reflected some important movement from the allies’ previous posture.
Unlike their pronouncements during the first 14 months of the Asian crisis, the seven nations appeared to agree that the slump now has widened to the point that it threatens to jeopardize the health of the global economy.
There also is a wide recognition that if the crisis engulfs Latin America, it will mark a major ratcheting-up of the dangers that it poses globally--and that Brazil is the place where the allies must make a stand.
Although analysts are uncertain about how soon the G-7 countries might act, they will have ample opportunity during the next few days to gauge the situation.
Today Greenspan and Treasury Secretary Robert E. Rubin are scheduled to testify before the House Banking and Financial Services Committee--a session at which they might disclose more about what is in store.
On Monday, Clinton will meet with Japanese Prime Minister Keizo Obuchi.
