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World: Greenspan Worried About Contagion

Washington, 30 October 1997 (RFE/RL) - Alan Greenspan, chairman of the U.S. Federal Reserve Board, yesterday expressed concern about the contagious character of national economies, spreading weaknesses from country to country.

He said the recent turmoil on stock exchanges shows a growing tendency of the financial system to transmit problems rapidly from one part of the globe to another. The experience in Asia shows the importance of sound domestic banking, he said.

In testimony before the U.S. Congressional Joint Economic Committee, Greenspan said rapidly developing free market economies can be expected to run into difficulties. There will be occasions, he said when investment mistakes are made and private capital flows temoporarily turn adverse.

Greenspan said when this happens, governments should concentrate on laying a structural foundation for renewed economic growth. He said governments must allow private companies to default and investors must take their losses.