Rubin Will Step Down as Treasury Secretary

Treasury Secretary Robert E. Rubin, the self-effacing Cabinet officer who helped create Clinton administration economic policy and then sold it to a skeptical financial world, announced his resignation Wednesday and will be replaced by his deputy, Lawrence H. Summers.

When Rubin leaves, probably about July 4, President Clinton will lose one of his most trusted aides. Rubin’s push for deficit reduction helped set the stage for the economic boom of the 1990s, which might be remembered by history as Clinton’s greatest achievement. In a Democratic administration, he was one of the few officials with credibility on Wall Street, where he gained great wealth before coming to Washington.

Summers, an academic economist known both for his brilliance and for his sometimes abrasive manner, has been half of an effective odd couple with Rubin for years and will not change course, officials said Wednesday. The leadership change momentarily unnerved Wall Street, where the Dow Jones industrial average dropped more than 200 points before making up most of the loss.

“I will miss his cool head and steady hand, his sharp mind and his warm heart,” Clinton said at a White House Rose Garden ceremony. He praised Rubin as “the most effective Treasury secretary since Alexander Hamilton.”

The 60-year-old Rubin, revealing no plans beyond spending more time with his family, said simply: “It’s time to go back home.” His interest in leaving had been signaled months ago.

Unlike Rubin, who had been co-chairman of the Goldman Sachs investment firm, Summers, 44, is regarded as untested in the investment world, which has exerted growing influence over the U.S. economy in the 1990s.

Clinton, paying tribute to Summers’ intellect, described him as “brilliant, able, a critical part of our economic team during the entire life of this administration. . . . Rarely has any individual been so well-prepared to become secretary of the Treasury.”

The White House also nominated Stuart Eizenstat, 56, a Washington veteran and undersecretary of State for international affairs, to succeed Summers in the No. 2 post at Treasury.

Both Summers and Eizenstat will require Senate confirmation, and reaction Wednesday was favorable if guarded. Potentially divisive debates over Social Security, Medicare and Republican-led efforts to cut taxes are pending on Capitol Hill, and Summers will become a lightning rod for criticism of Clinton’s approach to these and other issues.

Don Nickles of Oklahoma, the Senate’s assistant Republican leader, warned that he was troubled by some of Summers’ views and said it was “too early” to say how he would fare in the confirmation process.

More encouraging to the White House, Senate Finance Committee Chairman William V. Roth Jr. (R-Del.) said his panel had “a good working relationship” with Summers. “I look forward to his appearance before the committee,” Roth said in a statement, in which he complimented Rubin as a “stabilizing force in a turbulent world economy.”

Sen. Phil Gramm (R-Texas), chairman of the Banking Committee and a member of the Finance Committee, also had restrained but positive words for Summers: “I know Larry Summers very well, he’s a very smart guy, and obviously we have to go through the confirmation process, but I like working with smart people.”

Rubin, who took a White House job in 1993 as head of the National Economic Council, quickly established himself as a key insider before succeeding Lloyd Bentsen as Treasury secretary two years later.

From the start, he made clear that he frowned on bashing the Federal Reserve, that he believed in a sound U.S. dollar and that he viewed fiscal discipline as consistent with social goals, such as his own focus on improving the inner cities.

A soft-spoken personality who could convey a sense of the world’s weight yet still manage a smile, Rubin also became a focal point for criticism of Clinton policies, both from frustrated White House staffers and congressional opponents.

For example, Rubin quietly took issue with those in the administration who sought to spend more on social goals right away, giving deficit reduction a lower priority.

“He understood that the only way to get the Fed to reduce short-term interest rates was to aggressively cut the budget deficit, and he was right,” said former Labor Secretary Robert B. Reich, who was among those arguing for greater outlays on social needs. Reich added: “I was right too.”

Rubin also spearheaded efforts to rescue Mexico from a hemorrhage of investment capital in late 1994 that threatened a national catastrophe. While many view the effort as a successful exercise in leadership--Congress had balked at aid, and the Treasury cure worked completely, with the United States even making money on the $20-billion package of loans and guarantees--Rubin also took some heat for letting speculators off the hook.

“Was it perfect?” asked Lawrence Chimerine, an economist with the Economic Strategy Institute in Washington. “No--but the fact that he took charge of it was very, very helpful.”

Rubin also was criticized for responding slowly to the financial crisis that erupted in Thailand in July 1997 and soon threatened to engulf the developing world. More recently, he focused on efforts to strengthen what he terms the world’s “financial architecture,” the interconnected system of financial markets that seemed to go berserk after Thailand’s crisis.

He was also attacked for his support of International Monetary Fund policies that critics said worsened the economic crises in Indonesia, Thailand and South Korea.

Rubin, taking the position that there is no single quick fix, championed a series of unglamorous reforms, such as requiring greater financial disclosure by nations receiving financial aid and more effective relief efforts by the World Bank and International Monetary Fund.

Rubin has longed to return to private life for many months, but refrained during Clinton’s impeachment ordeal and the global financial turmoil.

“In some ways you can look at this as a sign of confidence” that the global financial crisis is over, Chimerine said.

Rubin’s departure will break up what had become the well-regarded team of the personable Treasury secretary and his intense, intellectual deputy.

“They weren’t just two people in the same building, they spent half their time in each other’s offices when I was there,” recalled Jeffrey Shafer, vice chairman of Salomon Smith Barney International in New York, former Treasury undersecretary for international affairs.

Fed Chairman Alan Greenspan said in a statement that he was saddened by the resignation of Rubin, whom he labeled “one of the most effective secretaries of the Treasury in the nation’s history. . . . I cannot begin to describe how much I have learned from Bob Rubin.”

* CHANGING THE GUARD: Lawrence H. Summers is known to be smart, edgy. C1