Confidence in Asia shattered: Greenspan

Confidence in Asia shattered: Greenspan

WASHINGTON (Reuters): U.S. Federal Reserve Chairman Alan Greenspan offered a bleak assessment on Friday of the financial crisis gripping Asia, saying bank runs had reached crisis proportions in Indonesia and confidence was shattered.

"In an environment of weak financial systems, lax supervisory regimes and vague guarantees about depositor or creditor protections, bank runs have occurred in several countries and reached crisis proportions in Indonesia," Greenspan told a Federal Reserve Bank of Atlanta conference in Miami Beach, Florida.

"Uncertainty and retrenchment have escalated. The state of confidence so necessary to the functioning of any economy has been torn asunder," he said. "Some exchange rates have fallen to levels that are understandable only in the context of a veritable collapse of confidence in the functioning of an economy."

Asia's economic crisis has so disturbed the Clinton administration that it has decided to send its second envoy to the region in as many months.

Former U.S. Vice President Walter Mondale is visiting Indonesia to discuss the need for political and economic reforms. Collapsing currencies in Asia were rooted on a "visceral, engulfing fear" rather than a rational reaction to sharp declines in the state of economies, Greenspan said.

While stressing the seriousness of the problems facing Asia, Greenspan held out hope of recovery if its hardest-hit nations reformed their ways and the international community continued to offer support.

"Eventually, the Asian economies now suffering from the current crisis will recover," Greenspan said. "If the proper policies are pursued and there is support from the international community, the process of recovery can begin soon and the structural reforms necessary for more durable growth will be under way."

Without specifically mentioning the International Monetary Fund, Greenspan said institutions working to contain Asia's financial crisis should be supported.

The Clinton administration has asked Congress to approve about $18 billion in additional funds for the IMF to replenish resources drained by 1997's multibillion-dollar bailouts for Indonesia, South Korea and Thailand.

Greenspan also said the global financial system was in need of reform.

"I believe that what is being referred to as the architecture of the international financial system will need to be thoroughly reviewed and altered as necessary to fit the needs of the new global environment," Greenspan said.