Thursday, May 20, 1999 Published at 15:45 GMT 16:45 UK
Business: The Economy
US calls time on global financial reform
The US wants help for the world economy from the G7
The US government has called for the completion of global financial reforms at a summit of world leaders in June.
US Secretary of State Robert Rubin said that changes in the behavior of banks, developing countries and international institutions were necessary to reduce the risk of another crisis.
At the same time, it believes that the regulation of the banking system should be tightened up in order to avoid risky lending.
And it has called for a greater burden sharing among private sector firms to bear the costs of any financial rescue package.
Mr Rubin, who will step down from his post in July, said the aim of the reforms was to make the world economy function more efficiently.
"We believe market-based systems create the best prospects for growth and rising standards of living both within the United States and in the rest of the world," he added.
Alan Greenspan, chairman of the US Federal Reserve, supported Mr Rubin's views.
"Exposure of an economy to short-term capital inflows, before its financial system is sufficiently sturdy to handle a large unanticipated withdrawal, is a highly risky venture," he said.
And Mr Rubin said countries which tried to keep their currencies fixed at a certain rate, by linking to the dollar, for example, should not be bailed out.
"At the core of each recent crisis has been a rigid exchange rate regime that ultimately proved unsustainable," he said.
"We believe that the international community should not provide exceptional, large-scale official finance to countries intervening heavily to defend an exchange rate peg," he added.
Both Mr Rubin and Mr Greenspan agreed that the most difficult problem was how to reform the private sector which lent the money.
Mr Rubin believes that banks and bondholders should bear some of the costs of rescue packages, but has not been able to reach agreement on how to do it.
Mr Greenspan would like more bank supervision and more disclosure of risks.
"Broader dissemination of detailed disclosures by governments, financial institutions and firms is required if the greater risks inherent in our vastly expanded global financial structure are to be contained," Mr Greenspan said.
But he also called for international controls on the amount of risk undertaken by banks.
"The answer is, as it always has been, less leverage, i.e. less debt, more equity and hence a larger buffer against adversity and contagion," he added.
Both men were testifying to the US Congress in advance of the annual global economic summit in Cologne in June.
Reform the IMF
The US administration is under pressure from Congress to reform the international financial institutions, especially the International Monetary Fund (IMF), who some Republicans blame for exacerbating the crisis.
Mr Rubin said that the US was deeply committed to continuing the process of IMF reform.
The introduction of stand-by credit lines meant that the IMF was now ready to lend to countries with sound policies before a crisis broke.
It had agreed to more openness in explaining its policy decisions, including the publication of letters of agreement concerning loans and country surveillance reports.
At US urging, its programmes would now focus on trade liberalisation, and the protection of the environment and working conditions.
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