Originally created 09/06/98

Allies dwindling in U.S. fight against economic anarchy



SAN FRANCISCO -- The Clinton administration, struggling to stabilize a global economy gone haywire, finds itself fighting on multiple fronts with a dwindling number of allies.

But one critical player, Federal Reserve Chairman Alan Greenspan, made it clear he can be counted on: Greenspan has sent a straightforward signal that the U.S. central bank is prepared to lower interest rates if needed to ward off a U.S. recession.

"It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress," Greenspan said in a speech late Friday.

President Clinton counts on a continued good economy to help him overcome the Monica Lewinsky matter, and he sought Saturday to reassure Americans after a wild week on Wall Street.

"The bottom line is that for all the quicksilver volatility in the world's financial markets, the American economy is on the right track," Clinton said in his weekly radio address.

Noting Friday's report that 365,000 new jobs were created last month, Clinton said: "The pillars of our prosperity stand solid."

Nevertheless, Treasury Secretary Robert Rubin flew home Saturday from talks with Japan's new finance minister having failed to gain the one thing the Clinton administration most wants -- a strong Japanese action plan to lift the world's second largest economy out of its worst recession in 50 years.

Reviving Japan is the key to reviving the world economy, Rubin said.

Meanwhile, Clinton was returning from a Moscow summit, where he spent much time trying to convince Boris Yeltsin's government that ditching free-market capitalism for the old-style Soviet command economy is the wrong way to go.

While Yeltsin pledged to stick with economic reform, the carnage from his botched ruble devaluation and decision to halt payment on billions in foreign debt was still playing out in world financial markets.

Shock waves from Russia's actions sent Wall Street on a wild ride, producing a 513-point plunge in the Dow Jones industrial average Monday and leaving the Dow at week's end down 1,700 points, or 18.2 percent, from its July record.

Russia's slide also jolted South America, home to some of the United States' fastest-growing export markets.

Stocks and currencies across Latin America took a nosedive, even as their finance ministers were in Washington attending a unique International Monetary Fund conference intended to demonstrate that, unlike Russia, Latin America would stay the course of economic reform.

Rubin, calling Latin America "profoundly important to the United States," pledged that "if the need arises, we would certainly support strong IMF involvement, and we would be very much involved ourselves."

But given the steep recessions now hitting a number of Asian countries, Russian leaders are not the only ones threatening to jump off the free-market band wagon.

Malaysia's prime minister charged that the Western capitalist system "has gone wild," fired his reform-minded finance minister this week and imposed strict currency controls aimed at thwarting the traders he blames for leveling Malaysia's economy.

The Clinton administration's fear is that such an anti-market backlash will spread to other countries. And with countries such as China and India seeming to prosper exactly because they do limit the buying and selling of their currencies, other nations are certain to be tempted.

Both U.S. and Japanese officials confirmed the idea of controlling money flows was discussed during Rubin's Friday night dinner with Japan's finance minister, Kiichi Miyazawa. Greenspan also was there, and he came out squarely against the idea.

Rubin, who made a fortune as a currency trader on Wall Street prior to his government job, spent his time in San Francisco preaching the virtues of the free market, arguing that countries have no other choice in a globalized world.

Rubin's mantra includes strong support for the IMF, which extends emergency loans to bankrupt countries on condition they follow austere belt-tightening programs to win back foreign investors.

But the IMF faces increasing criticism. Rubin predicts the administration will win an uphill battle in Congress this month for $18 billion to replenish its finances, but House Speaker Newt Gingrich wants an accounting of the billions in loans the IMF has already given countries such as Russia.

"Where has all this money gone?" Gingrich asked Rubin in a letter. "How much of this money is in the hands of corrupt officials or their corrupt business associates?"