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Russia: U.S. Economy Remains Robust

Washington, 2 September 1998 (RFE/RL) -- U.S. political leaders and financial experts say the American economy is healthy despite volatile stock prices.

President Bill Clinton told a group of university students in Moscow on Tuesday that the fundamental economic policy driving the American economy is "sound." He said stock fluctuations can be expected in a free market system.

U.S. Treasury Secretary Robert Rubin said the U.S. economy remains robust. He said: "Prospects for growth, low unemployment, low inflation continue to be strong."

In New York, The Dow Jones Industrial Average, a key stock market indicator, rebounded on Tuesday, rising about 286 points, a 3.8 percent increase. It closed at 7,825 points.

On Monday, the Dow dropped 512 points, or 6.4 percent, the second largest in the Dow's history in terms of points.

In Western Europe, however, stock prices continued their decline on Tuesday.

In Frankfurt, the Dax closed 0.9 percent lower than the day before. In London, the Financial Times Index of 100 leading stocks closed down 1.52 percent. The Paris CAC-40 Index see-sawed all day, but closed only 0.15 percent lower.

In Asia, Malaysian shares plunged 13 percent after the government announced it would halt free trading in the currency, the ringgit, to isolate the economy from volatile financial forces. Shares in Hong Kong dropped more than two percent.

Denny Gulino, Washington director of Market News Service, said in an interview with RFE/RL that when the New York stock market recalibrates itself, everything looks like a problem.

He said: "Things that are little problems and things that are big problems all get grouped together and everyone is worried about everything."

Gulino said that when the markets are plunging, everybody is anxious and sometimes overreacts but the same thing is true on the positive side.

"When everything was looking good, everybody was happy," he said.

He said: "The bad times are not going to persist. But you probably are not going to see the heights of the Dow Industrials -- we're not going to see that for a long time either."

Commenting on the Russian economy and its impact on the U.S. stock market, Gulino said that the Russian economy should have very little direct impact on the U.S. economy.

Said Gulino: "But it became the surrogate for all of the bad news. So if you weren't too sure about what you were unhappy about, you could always pin it on Russia."

Gulino said the United States has benefited from its own exports and has become part of the globalized world. But, he added, the U.S. economy "is still very independent to a large degree."

Washington-based financial expert Jay Shapiro said there are two elements to the stock market: one is emotional; the other based on fundamental economics.

Shapiro said: "The emotional element is, of course, associated with what is going on in Russia right now, what's going on in Asia, Japan. The fundamental part of it is really tied in with a combination of factors such as production, corporate earnings, corporate profits, interest rates, things like that."

He said those two elements are not divorced from each other and dictate how the market moves.

Shapiro said strictly from the economic point of view, Russia should have little impact on the U.S. financial markets because that country's economy is small compared to that of the U.S.

He also said that the U.S. economy should continue to grow but perhaps not as much as in the past few years.

Some financial experts have expressed concern that the U.S. economy could be adversely impacted if Latin America becomes the next frontier of financial instability.

Senior economist Michael Gavin of the Washington-headquartered Inter-American Development Bank, told RFE/RL that the fallout of recent financial-market turbulence has so far been limited, with the main exception of Venezuela.

Venezuela, like Russia, depends heavily on oil export revenues. Crude oil prices have been depressed this year.

Gavin said: "Most countries in the Latin America region seem well-equipped to get through 1998 without major problems, even if international financial markets remain in their current, disorderly state."