EU calls on US to support aid package for Asia

Date: 12/02/1998

By Tim Jones

EUROPEAN financial decision-makers are pressing the US Congress to give its support to multi-billion-ecu international support programmes for ailing Asian economies.

EU governments fear that congressional leaders, most notably Senate foreign affairs committee chairman Jesse Helms, may vote to block approval of a package of international financial assistance totalling more than 100 billion ecu to Indonesia, Thailand, South Korea and the Philippines.

During a meeting with International Monetary Fund managing director Michel Camdessus in Brussels next Monday (16 February), finance ministers will underline their full support for the IMF's approach to the Asian market crisis in contrast to congressional scepticism, say EU diplomats preparing the agenda.

"European Union countries fully support the action taken by the IMF so far in the region," said UK Finance Minister Gordon Brown in his letter of invitation to Camdessus. "I believe it is essential to keep the IMF at the centre of the global response to what is a global problem."

Ministers, led by the European members of the Group of Seven top industrialised states (Germany, France, the UK and Italy), will propose possible reforms of the IMF to make it more "sensitive" to the particular imbalances which caused the crisis, said an official.

For example, South Korea, which was bailed out to the tune of 22 billion ecu by the IMF in January, suffered not from a traditional crisis of budgetary overspending or balance of payments problems but from a careless banking sector and companies borrowing too much abroad.

"To prevent a recurrence of this type of crisis, which is unlike what we saw in Latin America in the Eighties, the IMF will need to have more tools at its disposal," said a UK treasury official. "This will mean that countries expecting to get support packages will have to do more in return."

Camdessus will inform ministers about when he intends to come forward with the 'code of conduct' for fiscal policy he promised at the fund's annual meeting in Hong Kong in September.

Brown would like to see the code broadened to include the stability of the financial services sector and the acceptance of established standards for the quality and timeliness of economic data.

Camdessus has already claimed that his warnings to the Asian 'tigers' were ignored, and has revealed that he even made secret visits to Bangkok to try to persuade the Thai authorities to decouple the baht from the US dollar.

"The fund should be able to make its feelings public when its opinions have been stated repeatedly to a government and this has been ignored," said the UK official.

The IMF should also be able to look for signs of instability in banking systems and economic structures which are excessively vulnerable to a sudden outflow of capital. For example, according to the Bank for International Settlements, Thailand has debt payments of 45 billion ecu to meet over the next two years, South Korea 67 billion ecu and Indonesia 35 billion ecu.