World financial situation unprecedented -- Robert Rubin (fwd)

[Robert Weissman <rob@essential.org>]

Associated Press							June 3, 1998

New Asian Market Fears Raised 

	By Martin Crutsinger

WASHINGTON— The United States and other wealthy countries scrambled to
prevent a financial meltdown in Russia as turbulence in emerging markets
around the globe raised fears that the Asian crisis has entered a new and
more dangerous phase. 

The Clinton administration, which over the weekend endorsed new money for
Russia if needed to calm financial markets, spent Tuesday in consultations
with other major industrialized countries, members of Boris Yeltsin's
government and the International Monetary Fund, preparing for an emergency
meeting next Tuesday in Paris. 

Officials said that session could determine the timing and extent of new
money that will be made available to Russia in an effort to convince
investors that the nation has enough in reserve to fight off speculative
attacks on its currency, the ruble, and its stock market. 

Delivering a sober assessment of the current financial turmoil, Treasury
Secretary Robert Rubin said that Thailand, Indonesia and South Korea still
face difficult times in the battle to restore economic growth even with the
aid of more than $100 billion in emergency assistance assembled by the IMF. 

"A country does not come out of these kinds of conditions without going
through a period of economic difficulty," Rubin said in a speech to
executives of major corporations who serve on the President's Export Council. 

Rubin said the crucial job now was to stabilize conditions in other
countries that have seen their markets swoon as investors have grown
concerned about Asian-style meltdowns happening elsewhere. 

He said problems in Russia and South Africa and market turbulence in other
parts of the world in recent weeks were attributable in part to fears the
crisis could be spreading. 

"I think it would be fair to say that the situation facing the world today
with respect to financial stability is unprecedented," Rubin said. 

Later, he confirmed to reporters that deputy finance ministers from the
world's seven richest democracies — the United States, Japan, Germany,
France, Britain, Italy and Canada — would meet next week in Paris to try to
develop a consensus on an approach to help Russia. 

Rubin refused to disclose any amounts of assistance being discussed. Russia
currently has a three-year, $9.2 billion IMF support package, and there has
been market speculation that an additional $10 billion may be needed to get
Russia through the current crisis. 

In recent weeks, rioting in Indonesia, labor strikes in South Korea, a
plunging Japanese currency and dramatic declines in Russian stock prices
have jolted financial markets in both industrialized countries and
developing nations. 

The Russian stock market, which had lost 44 percent of its value since the
first of the year, rebounded slightly Tuesday, rising by 12 percent after
Yeltsin delivered a tongue-lashing to Russian business tycoons, telling
them they must do more to keep investors from pulling out of the Russian
economy. 

Yeltsin sent a team of Russian officials to Washington last Friday and
Saturday for discussions with the administration over the steps his
government is taking to restore investor confidence. 

Rubin said Tuesday that the administration is impressed with Yeltsin's new
government, in office just a month, but that the key test would be whether
it would have any more success than previous officials at boosting
government revenues by ending rampant tax evasion. 

Last week, Yeltsin fired the head of Russia's tax service and replaced him
with former Finance Minister Boris Fyodorov, whom Rubin called "very
effective and strong-minded." 

The increased global instability, including declines last week in U.S.
stocks, has been attributed to fears that Russia will not be the last
country affected. A number of Latin American nations, including Brazil and
Mexico, have seen sharp dips in stock prices in recent days. 

Standard & Poor's DRI, a major U.S. economic consulting firm, said that a
major concern was not only that the crisis would spread beyond Russia to
Eastern Europe and Latin America, but that investor nervousness could
ignite a second round of instability in Asia, including Japan, which is
currently mired in a recession. 

"We think there is a 20 percent chance that we will get a major second
round of Asian turmoil," said David Wyss, chief financial economist at DRI.
He said such a development could be severe enough to pull the United States
and the rest of the industrialized world into a global recession. 

So far, the U.S. economy has escaped relatively unscathed with strong
domestic demand offsetting the loss of Asian export markets. 

Rubin told the business group that the U.S. trade deficit would "go up
substantially" this year because of the Asian turmoil but that the U.S.
economy should be able to withstand that shock because of continued strong
domestic demand and low inflationary pressures.