U.S., Japan suggest new tactics to heal world economy

Web posted November 13, 1998

By Martin Crutsinger
Associated Press

KUALA LUMPUR, Malaysia -- The United States and Japan suggested new tactics Thursday to fight the world financial crisis as they prepared for talks next week by President Clinton and the leaders of 20 other Pacific Rim countries.

Overshadowing the efforts, though, is that some of the countries have sharp differences on such basic questions as whether free-market trade is good.

Japan unveiled a proposed $148 billion economic stimulus package -- its biggest yet -- hoping to answer international criticism that it has done too little to help its troubled Asian neighbors.

And U.S. officials worked behind the scenes to line up support for proposals to provide help to debt-ridden banks and companies. The U.S. also wants a bigger social safety net for millions of people pushed back into poverty by the 17-month crisis.

The activity is aimed at producing concrete results for Clinton and other leaders to trumpet at the sixth annual Asia Pacific Economic Cooperation summit next Tuesday and Wednesday.

But it's unlikely the countries will be able to paper over their huge differences over the best way to deal with what Clinton calls the worst world economic crisis in a half-century.

Malaysia's government made clear Thursday that its prime minister will use his prerogative as meeting chairman to push views directly opposed to the free-market approach championed by the United States and the International Monetary Fund.

``Our prime minister has often lamented the free flow of capital and this so-called unbridled movement causing havoc to many markets,'' said Abdul Razak, the Malaysian official chairing agenda-setting talks among senior officials.

So deep are the divisions that the Clinton administration has debated whether the president should stay away to express disapproval of Prime Minister Mahathir Mohammad's economic views as well as his firing and jailing of his finance minister, Anwar Ibrahim.

This is the second APEC summit overshadowed by the Asian crisis, which erupted in Thailand in 1997 and has since pushed several Asian countries and Russia into steep nosedives. It also now threatens Latin American nations.

Meanwhile, the trade and finance officials meeting in Malaysia spent Thursday haggling over details of a trade liberalization measure to eliminate tariffs in nine areas from chemicals to medical products, which together make up $1.5 trillion in global trade.

Japan insists that wood and fish products, two politically sensitive areas for rural Japanese, not be included in the package.

Other countries object, arguing the whole deal will fall apart if nations begin trying to opt out in their most sensitive areas.

``That would be a disastrous course,'' Australian Trade Minister Tim Fischer said.

In September, Mahathir, who has blamed foreign currency traders for his country's economic problems, made it illegal to buy and sell ringgits, the Malaysian currency, outside of the country.

He also imposed stiff controls on the withdrawal of foreign capital, an attempt to stop panicked investors from leaving.

U.S. officials argue there is no alternative to the IMF formula of austerity measures to fix flawed economies and restore investor confidence.

At the same time, they have begun to stress the need to be sensitive to the people and bankrupt companies harmed by economic downturns. Already, 40 percent of the world is estimated to be in recession.

The United States fears that unless some way is found to help the victims of free market turmoil, their suffering will trigger growing social unrest and embolden other countries to follow Malaysia's lead and close their economies to U.S. corporations seeking investment opportunities.

The United States wants to tap $30 billion that Japan is offering as aid to its Asian neighbors to pay for its debt restructuring proposals. That has prompted Japanese officials to complain that the United States wants to put up the ideas and have Japan put up the money.

A U.S. official insisted the United States is already bearing its share of the effort through the soaring U.S. trade deficit, which occurs because of rising imports from Asian nations and reduced Asian demand for American products.