FINANCE-US: Clinton Responds to World Economic Crisis

By Farhan Haq Reprint | | Print |

NEW YORK, Sep 14 1998 (IPS) - U.S. President Bill Clinton Monday staked out a tough stance in defence of the globalised economy and the major international financial institutions – but at a time when his credibility, and theirs, was ebbing.

Speaking to the Council on Foreign Relations Monday, Clinton vowed the United States would help other nations to spur growth and to help Asian businesses “emerge from crippling debt burdens”. The centrepiece of his speech was a promise to push Congress to pay U.S. dues to the International Monetary Fund (IMF) and to urge that the agency be allowed to use 15 billion dollars in emergency funds to help counter world financial crises.

“Failure by this Congress to pay our dues to the IMF will put our own prosperity at risk,” Clinton warned.

Clinton, focussing on the subject at hand, gave no indication he was distracted by the furore after revelations of his sexual affair with an intern at the White House that have filled newspapers, radio ansd TV programmes at home and abroad.

The president argued that nations “have to be ready to respond immediately and with financial force, if necessary, to the currency crisis if it spreads, especially if it threatens the economies of Latin America”. As a result, he added, “the major economies should stand ready to activate the 15 billion dollars now in the emergency funds of the IMF, the General Agreement to Borrow, to ensure that the IMF continues to support reform and fight economic contagion”.

Clinton’s stance – including a tough line in support of fiscal monetarism and free-market policies worldwide – was welcomed in Wall Street after the recent crash of world stock markets in response to financial crises in Asia and Russia. It came at a time when the scandal-damaged president and the IMF alike are being subjected to more doubts than ever.

“Certainly Clinton is in a weak position,” said Tony Avirgan, communications coordinator for The Development Gap, a Washington- based think tank. At least part of that weakness, he argued, is because of “the collapse of IMF and World Bank programmes all over the world”.

“Any reasonable person would have to ask why we would have to keep paying for the World Bank and IMF to recommend these policies that have failed,” Avirgan contended. “Neither the IMF nor the World Bank has shown any flexibility in financial policy.”

In recent days, a growing number of nations have turned away from the sort of strict monetary policy upon which the IMF conditions its loan assistance. Malaysia has pushed to end all foreign trading in its currency, the ringgit, while Hong Kong has put in place price controls to protect its own economy.

Over the past week, Russia’s parliament and president approved a new prime minister, Yevgeny Primakov, whose top advisers are former Soviet-era officials who have discussed increasing state control over the economy after years of liberalisation.

Clinton underscored the importance of possible change in Russia’s direction at the Council on Foreign Relations. “Never has there been a more important moment to set a clear direction for the future, to affirm the commitment of Russia to democracy and to free markets and to take decisive steps to stabilise the economy and restore investor confidence,” he said.

Even as he promised to support Russia if it continues to pursue free-market policies, however, Clinton warned, “No nation, rich or poor, democratic or authoritarian, can escape the fundamental economic imperatives of the global market.” He urged Japan to follow strong pro-growth policies and for all nations to maintain open markets.

Yet the president is severely hobbled by his inability to offer much in return. Stung by charges of improper sexual relations, perjury and obstruction of justice – stemming from an affair with former intern Monica Lewinsky – Clinton is unable to pressure Congress to assist the IMF or ailing economies like Russia’s.

That was underscored last Friday, when a key committee in the Republican-led House of Representatives, which may soon discuss whether to begin impeachment proceedings against the president, refused to approve an addition of 18 billion dollars to the IMF.

Instead, the House Appropriations Committee passed only 3.5 billion dollars for an emergency line of credit but opposing 14.5 billion dollars in increased membership dues. The Senate has already approved the dues payment and there are only five weeks remaining in the current Congressional term to steer the measure to a full House vote. Any differences between House and Senate approvals also would have to be reconciled.

Without the money, the IMF will be hard-pressed to support Russia or Latin American economies as they face the next wave of speculative attacks and currency instability from the financial crisis.

The IMF’s liquid resources have largely evaporated following failed attempts to bolster the Russian rouble, noted Lawrence Goodman, chief economist for Santander Investments. “It would be difficult to point fingers at the World Bank and the IMF in this case,” he said of Russia’s woes. “It is clear that they don’t have the horsepower.”

Clinton spent very little effort in recent days lobbying Congress on the IMF funding. Instead, he prodded the seven wealthiest industrialised nations, the Group of Seven (G-7), to initiate new policies to reform the international financial system.

“I have asked (Treasury Secretary Robert) Rubin and Federal Reserve Board Chairman (Alan) Greenspan to convene (a meeting of) the finance ministers and central bankers of the G-7 and key emerging economies in Washington within 30 days … on strengthening the world financial system,” Clinton said Monday.

Avirgan responded that if G-7 finance leaders meet this month, “they ought to hear the suggestions from the people that are affected by these policies”, including unions and civil society organisations, “instead of listening to people from Wall Street”.