Washington, 15 September 1998 (RFE/RL) - The various financial crises racking the globe in recent months, taken together, are the biggest economic challenge facing the world in half a century, says U.S. President Bill Clinton.
It is an inescapable obligation of the United States to lead in finding solutions, he says.
Clinton focused on U.S. leadership in a global economy in a major speech before the Council on Foreign Relations, a private organization, in New York Monday.
He said he has asked U.S. Treasury Secretary Robert Rubin and Federal Reserve (Central Bank) Chairman Alan Greenspan to call a meeting of their counterparts among the 22 nations with the largest economies within a month to review the general situation.
The President said it is a great irony that at a moment of unsurpassed economic strength in the U.S., there is such turmoil in the world economy. "Our future prosperity depends upon whether we can, with others, restore confidence, manage change, stabilize the financial system and spur robust global growth," said Clinton.
He said the U.S. must recognize that America cannot remain an "oasis of prosperity," and faces serious risks with a full quarter of the world's population living in nations with declining growth.
Clinton called for specific immediate steps, including efforts by Japan and Europe to spur growth of their own economies. In addition, he said the World Bank and other institutions should expand efforts to provide support for social safety nets to help innocent victims of financial turmoil, especially in Asia.
He also urged other major industrial nations to stand ready to use the special emergency fund for the IMF, known as the General Agreements to Borrow, to make sure that financial contagion from Asia and Russia do not spread to Latin America and elsewhere. The fund has around $15 billion left after emergency loans to Russia.
Clinton specifically asked Rubin to work with international institutions to work out some debt relief for individual firms in Asia which have been virtually destroyed by the financial crisis there. "We need to get credit flowing again," said Clinton.
Rubin, who addressed the council later, said the whole question of capital flows -- too heavy in good times, too little in crisis times -- is very complex and still not well understood. In Asia and Russia, said Rubin, there were very large flows of private capital going in for years, but too many underestimated the risks.
He said that in boom times, the money flows in excess into badly flawed financial systems and people "tend to get less careful" about weighing the dangers. Then when the capital suddenly is pulled out as investors and lenders lose confidence, everyone is surprised.
Rubin said no date has been set for the meeting of the 22 countries, the group which met a year ago to review proposals for reforming the architecture of the global financial system, but that it could easily be around the IMF/World Bank annual meetings in early October in Washington.
The Treasury Secretary said they would probably focus on three key areas -- transparency of all financial systems, dealing with financial sectors in developing countries, and making sure that private sector creditors and investors bear the consequences of their actions.
One criticism of IMF rescue packages has been that they encourage what is called "moral hazard" by allowing lenders and investors to believe they will be saved regardless of the risk of their investments or lending.