Clinton moves to reassure global financial markets
Clinton moves to reassure global financial markets
WASHINGTON (AP): President Clinton is trying to restore confidence in financial markets after an abrupt devaluation of Brazil's currency called into question his strategy for dealing with the 18-month-old global economic crisis.
Clinton said on Wednesday he and members of his economic team were monitoring the crisis in Brazil closely and had been in contact with Brazilian authorities, the International Monetary Fund and U.S. allies.
"We have a strong interest in seeing Brazil, with whom we have worked on so many important things around the world, carry forward with its economic reform plan and succeed, and we certainly hope that they will," Clinton told reporters at the White House.
Latin America accounts for 20 percent of U.S. export sales.
Last fall, with the financial crisis threatening to claim Brazil as its next victim, the administration convinced the IMF to try a new approach -- offering bailout money up front as a way of keeping nervous investors from fleeing developing nations rather than offering assistance only after a country's economy has been leveled.
Brazil became the first test case of that strategy in November when the IMF put together a US$41.5 billion bailout package, including $5 billion from the United States.
The effort bought time, but there has been renewed turmoil in Brazil in recent weeks as President Fernando Henrique Cardoso ran into roadblocks in starting the economic belt-tightening he pledged in return for the IMF money.
The abrupt resignation of the head of the Brazilian bank and the effective devaluation of Brazil's currency by 7.6 percent sent a jolt through financial markets Wednesday. The Dow Jones industrial average lost more than 250 points in the first hour of trading before recouping some of those loses to close down 123.48 points.
Private economists have warned that more turbulence is likely.
"The administration's test case is looking shaky right now," said Clyde Prestowitz, head of the Economic Strategy Institute think tank. "The problem is that the Brazilians haven't been able to get their act together and that is posing a lot of real dangers for the rest of the world."
Administration officials, informed by Brazilian authorities of their intention to devalue Tuesday night, spent Wednesday on the telephone to other rich G-7 nations and developing countries in an effort to assess the damage.
Treasury Secretary Robert Rubin said what's needed is "implementation of a strong, credible economic program" by Brazil.