Washington, 5 August 1998 (RFE/RL) - The U.S. government's top official dealing with international finance says the success of the Russian government in carrying out its reform program is of the "utmost importance economically and politically" to the global economy.
Deputy U.S. Treasury Secretary Larry Summers says Russia's continuing structural problems have been exacerbated by "contagion effects" from the Asian crisis. However, he says, these problems raise serious questions about the future because Russia's troubles have the "potential" to become those of Central Europe and the world.
Summers spoke to the Association of U.S. State Governors meeting in Milwaukee, Wisconsin Tuesday. He noted the increasing effects on the American economy of the Asian financial crisis -- such as dramatically falling exports of farm products from some U.S. states -- and underlined how important it is that other countries, like Japan and Russia, do their part to deal with their own problems.
Summers said national financial crises have elements of a "self-fulfilling prophecy," like bank runs, where everyone expects failure or everyone expects everyone else to expect failure which leads to a rush to be the first one out and thus causes failure.
That is where temporary, conditioned international support provides a "bridge" to overcome this self-fulfilling prophecy, said Summers, and provides a vehicle for countries to get their policies in order and to strengthen their financial systems.
He said it is important that international assistance packages, like those put together for Asia and Russia recently by the International Monetary Fund (IMF), maintain a balance between building confidence and avoiding bailouts for investors and bankers who should have known better.
While the rescue package must not protect those who willingly assumed serious risks, said Summers, it is "imperative to create confidence and to avoid disaster (which) in some circumstances compel actions that do benefit some creditors."
This shows, said the Deputy U.S. Treasury Secretary, that the role of the IMF is "essential" in dealing with financial crises.
To abandon the fund now, he said, would be "like canceling your life insurance when you have just gotten sick."
Summers called again on the American congress to approve the U.S. share of the IMF's quota, or member's fee increase, as a necessary step to assure that its capital base remains large enough to deal with the current global economy.
The U.S. Congress has balked at approving the $14.5 billion American share of the quota increase, as well as a U.S. contribution of $3.5 billion to a special fund for lending to the IMF when its own resources run short.
Most congressional opposition has come from Republican party members who either object to all international organizations or who believe IMF assistance is a short-term panacea and eventually only makes things worse for a national economy.
Summers said, however, that this failure to act, combined with the refusal of Congress to pay back dues owed the United Nations, leads to the conclusion "that we are fighting another swing of the pendulum into perilous isolation."
Summers said America's success and economic strength is not in question, but what is in doubt in the country's "ability to invest that success wisely."