WASHINGTON -- Federal Reserve Chairman Alan Greenspan and the Clinton administration tried Thursday to soothe turbulent financial markets with a reassuring message about Southeast Asian currency turmoil.
By day's end, the stock market managed a partial recovery from Wednesday's 157-point tumble. The Dow Jones average of industrial stocks closed up 86 points at 7,488.
At least so far, the sharp currency devaluations in countries such as Thailand, Indonesia and Malaysia have had only a modest impact in the United States, Mr. Greenspan and Deputy Treasury Secretary Lawrence Summers told the House Banking Committee.
In fact, it could help the United States by damping inflation, Mr. Greenspan said, a day after Fed policy-makers voted to hold U.S. interest rates steady.
"The financial disturbances that have afflicted a number of currencies in Asia do not at this point ... threaten prosperity in this country," he said, repeating testimony he delivered two weeks ago after the biggest one-day point loss in Wall Street history.
Mr. Summers, the No. 2 official in the Treasury Department, said, "We do not foresee significant risk to United States financial institutions or to domestic financial stability as a whole as a result of the turbulence to date."
But both officials also stressed the risks of permitting financial turmoil to spread to other nations -- particularly Japan and China.
"We all have very strong concerns that the contagion that has occurred and the weakness ... be stabilized as quickly as possible," Mr. Greenspan said. "These contagion problems slow down overall worldwide economic growth, including our own, and the sooner we can get them resolved the better."
At the same time, Mr. Greenspan played down disclosure by Chase Manhattan Corp., the nation's largest bank, that it lost $160 million before taxes from worldwide trading in October.
"Before this crisis is over ... there will be other losses recognized, but they are nowhere near the type of losses that threaten the U.S. financial system," he said.
However, he and Summers warned that reduced U.S. trade with Asia, over time, could hurt the United States.
"Emerging Asia accounted for one-fifth of our exports last year -- Japan a further 12 percent," Summers said. "The ... impact on our economy of a prolonged period of slower growth in Southeast Asia ... is potentially significant."
Aiming to contain Asian turbulence, the International Monetary Fund arranged a $17.5 billion rescue for Thailand in August. Two weeks ago, it approved a $23 billion loan package for Indonesia, with the United States taking a more direct role than with Thailand by providing $3 billion in backup assistance if needed.
The 181-nation IMF is trying to assemble a new emergency program of $46 billion for future crises. But the $3.5 billion U.S. contribution is blocked by conservatives in Congress who want to bar U.S. aid to family planning organizations performing abortions in other countries.
Summers said the impasse won't prevent the Indonesian package from going forward but said, "We will have diminished our capacity to respond in the future."
C. Fred Bergsten, director of the Institute for International Economics, who testified after Mr. Greenspan and Mr. Summers, said the administration hasn't done enough, particularly in Thailand.
"While the world burns, the U.S. is fiddling," he told reporters. "If this kind of currency spiral gets going, the recent 554-point drop in the market will look like child's play."
But Democrats on the House Banking Committee accused the administration of being too eager to bail out what they said was the corrupt regime of Indonesian President Suharto. Critics complain the country' economy is dominated by Suharto family members and close associates. He has permitted little political dissent during his 32-year rule and his army massacred protesters in East Timor, a former Portuguese colony annexed by Indonesia.
"Some of the worst human rights abuses that have taken place on the face of the Earth have taken place at the hands of the Indonesian government," said Rep. Joseph P. Kennedy III, D-Mass.
Summers said the IMF assistance to Indonesia is conditioned on "a radical restructuring" of Indonesia's financial system and "significant measures to deregulate and open the economy." These, he said, will "directly affect a broad range of exclusive privileges that have been extended to Indonesia's ruling elite."
"These efforts have not been motivated by charity. ... They have been motivated by our concern with America's interest in a strong American economy as part of the world economy," he said.
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