World leader attack speculators in Asian crisis

World leader attack speculators in Asian crisis

LONDON (Reuters): European and Asian leaders handed a diplomatic victory to Malaysian Prime Minister Mahathir Mohamad on Friday by agreeing that speculation in financial markets could be a cause of economic instability.

At the prompting of Mahathir, supported by several European countries, leaders of 25 Asian and European countries meeting here made a late change to a statement on the Asian financial crisis to insert a reference to speculation.

Mahathir, a long-standing critic of Western influence, repeatedly blamed speculators last year for fueling currency turmoil that marked the start of the Asian financial crisis.

In controversial speeches, Mahathir accused financier George Soros of mounting an attack on Malaysia's currency, the ringgit, which tumbled in value.

In the statement on the Asian crisis released after their first day of talks on Friday, leaders at the Asia-Europe Meeting (ASEM) said they discussed ways to strengthen the international monetary and financial system.

The discussion focussed on crisis prevention and reducing the vulnerability of domestic financial systems to potential shocks "including speculation-induced instability," it said.

The leaders called for the International Monetary Fund's (IMF) resources to be expanded through a quota increase and early ratification of new back-up credit lines.

They urged the IMF and international regulatory bodies to look at ways to improve transparency in financial and capital markets "including the possibility of monitoring short-term capital flows".

The currencies of several Asian countries plunged in value last year and Indonesia, Thailand and South Korea were forced to seek IMF-led bailouts totaling more than $100 billion.

"Dr Mahathir drew attention to the difficulties caused by speculators, that people need to be aware they can start trouble and can bring extra problems when people are already in trouble," Alastair Campbell, British Prime Minister Tony Blair's official spokesman, told reporters.

Mahathir's point was strongly supported by the leaders of several European countries, Martine Reicherts, a spokeswoman for European Commission President Jacques Santer, said.

"It wasn't the people from Asia, it was the people in Europe who insisted on that specific point," she told reporters.

She said the leaders were referring to the impact of speculation not just in the Asian crisis, but in other crises.

Conference sources said later that France and Belgium had supported the reference to speculation.

Italian Prime Minister Romano Prodi told reporters that currency speculation had played a large part in the Asian crisis but was not its cause.

"One of the lessons that we must learn from the Asian crisis is that speculation, and currency volatility, will be a big problem for the future of economies," he said.

Prodi said Europe's planned single currency, the euro, would be less vulnerable to speculation.

Dutch Prime Minister Wim Kok said it was a mistake to think that the Asian crisis was completely due to currency speculation. "The main problem is that there is a good possibility for those who speculate," he told reporters.

"It is important for the international monetary and financial institutions to have a close look into whether they are sufficiently equipped to follow what is happening and to prevent certain events," he said.

But he said speculation should not distract attention from problems such as inadequate legislation and supervision in individual countries.

The leaders' conclusion is surprising because European officials have stressed the need for better financial oversight, trade liberalization and economic reforms to overcome the crisis. The suggestion has been that failings in economic policy in Asia, rather than speculation, were to blame.

It is also out of character for free marketeers in the West to blame speculation.

Nigel Gardner, spokesman for European Trade Commissioner Sir Leon Brittan, said the European Commission was proposing to give 15 million ecus ($16 million) to a proposed trust fund at the World Bank. The fund would provide technical support to help with financial restructuring in Asian countries hit by the crisis.

He said that was about half of the 30 million ecus pledged to the fund so far, which should be enough to launch it.