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.