Asian catastrophe may spread

Asian catastrophe may spread

WASHINGTON (Reuters): Top U.S. policy makers has warned Asia's financial crisis could spread to other parts of the world and stepped up their campaign to win approval for billions of dollars to help contain the turmoil.

Federal Reserve Chairman Alan Greenspan joined Treasury Secretary Robert Rubin and Defense Secretary William Cohen Friday for more than four hours of Congressional testimony. He told lawmakers it would take plenty of money to overcome the near "panic" in Asian financial markets.

"There is... a small but not negligible probability that the upset in East Asia could have unexpectedly negative effects on Japan, Latin America, and Eastern and Central Europe that, in turn, could have repercussions elsewhere, including the United States," Greenspan told the House Banking Committee.

His most explicit remarks yet on the issue came just a day after he told another Congressional panel that the Asian crisis was likely to be felt in the world's top economy before the end of spring, but that it may help to keep inflation low by putting a lid on U.S. growth.

Rubin reiterated the view that the International Monetary Fund was the right institution to deal with the problems that have embroiled much of Asia. He insisted U.S. support for the fund's rescue efforts was in the nation's economic and security interests and had "not cost the taxpayer one dime."

U.S. President Bill Clinton has asked Congress to approve some $18 billion in fresh funding for the IMF, whose coffers have been depleted by bailouts for battered Asian economies totaling around $100 billion.

The administration is facing mounting criticism from both the political left and right for its involvement in the effort. Critics have charged that the IMF bailouts would shackle free- market forces, support corrupt governments and hurt the interests of workers both in Asia and the United States.

"The American taxpayers are being asked to rescue foreign economies and some domestic investors from the logical consequences of ill-considered policies and imprudent loans," Rep. Michael Castle, a Delaware Republican, told the hearing.

The chairman of the U.S. Senate Foreign Relations Committee accused the IMF of doing "more harm than good", and said he would oppose the Clinton administration's request to boost the agency's funding.

"I am not a fan of the IMF. I think it does more harm than good and I hope that the Congress will take a very good look at how much it's costing the American taxpayers," Jesse Helms, a North Carolina Republican, said on CNN's "Evans and Novak" program.

Asked if he opposed the administration's request to sharply boost IMF funding, Helms said: "I am. Absolutely."

Others were more sympathetic to the fund and its role in fighting global financial turmoil: "The IMF isn't the problem. It is the solution," Minnesota Democrat Bruce Vento said.

A forceful defense of U.S. involvement in the Asian rescue efforts came from Cohen, who warned of "ethnic conflict" in the region should the crisis worsen.

"If we think we can simply exist in splendid isolation and sort of envelop ourselves in a continental cocoon here in the United States, I think we are sadly mistaken," he said.

Rubin told reporters after the testimony that he felt reassured by the hearing because lawmakers had recognized the "enormous stakes this country has" in Asia's stability.

The Clinton administration has announced a major initiative aimed at overhauling the world's financial system but the government says the IMF must remain at the center of efforts to contain the Asian crisis.

"Not funding the IMF now would be like canceling your life insurance just when you've gotten sick," Deputy Treasury Secretary Lawrence Summers told the panel.

Greenspan reiterated that Asia's financial turmoil so far had only a mild effect on the U.S. economy but warned the risks of letting the Asian crisis spread were real, particularly in light of the weak state of the region's financial markets.

"I should like to stress that the significant degree of volatility that continues to exist in Asian markets indicates exceptionally high levels of uncertainty, bordering on panic," he said.

He added substantial investments in lasting structural reforms for Asia were unlikely to succeed unless the "frenetic" moves in equity and foreign exchange markets calmed down.

Greenspan said "virulent episodes" such as the Asian crisis may be more prevalent in today's global economy, but suggested a number of approaches to resolve the current turmoil and prevent crises from happening again in the future.

Those included strengthening the region's often-weak banking systems, improving transparency and disclosure, more reliance on market mechanisms and reducing the often excessive levels of corporate debt, Greenspan said.