No Plans to Coordinate Rescue Moves at G-7, U.S. Says
Thursday, October 9, 2008
Treasury officials said yesterday that the government now has the necessary tools to address the financial crisis and that the Bush administration has no plans to announce coordinated initiatives with other nations at a meeting this weekend of finance ministers from the world's leading economies.
The statements aimed to build investor confidence in the U.S. government's response and to cool expectations that the weekend meeting, convening as economic conditions rapidly deteriorate around the world, would succeed only if the gathered nations could agree on a big new plan.
"We have already taken a number of extraordinary bold actions on the liquidity front that I am convinced have been exactly the right policy steps," said Treasury Secretary Henry M. Paulson Jr.
He went on to plead for patience, acknowledging that it would take weeks to implement some of the programs authorized by Congress and more weeks before conditions improve. And even as he spoke, Treasury and Federal Reserve officials continued to develop plans for new steps if the financial markets continue to disintegrate. One of several options under consideration is taking ownership stakes in troubled banks.
It was by coincidence that leaders of the Group of Seven economic powers had scheduled a meeting in Washington as the global contagion spread. But the new administration line was greeted with skepticism and disappointment by a growing chorus of experts and world officials who thought the meeting offered a crucial opportunity to calm the markets.
"If these guys come to town and don't do anything significant, it will be a downer for confidence," said C. Fred Bergsten, director of the Peterson Institute for International Economics. "It's almost like if Congress had gone home without approving the rescue package. If they go away without contributing a substantive response, I think it's a negative."
Dominique Strauss-Kahn, managing director of the International Monetary Fund, yesterday issued a statement saying the IMF would endorse additional coordinated steps, such as restoring the ability of banks to borrow money, helping banks raise capital to support new lending and protecting their depositors.
"These actions should help to restore trust and confidence in financial markets needed to break the negative feedback loop to the real economy," Strauss-Kahn said.
The global situation continues to unravel. Iceland's economy appeared to enter a free fall, with its banking sector collapsing and its central bank abandoning a failed effort to shore up its plunging currency. Australia's dollar fell 6 percent in one day against the U.S. dollar. South Korea saw a sharp acceleration of the recent run on the won, with the currency falling 5 percent to a near 10-year low against the dollar. South Korean corporations appear to be hoarding dollars, as the export-driven economy there braces for a slowdown from declining global demand, particularly from the United States.
President Lee Myung-bak said South Korea's $260 billion in cash reserves would insulate it from the kind of meltdown it went through in the late 1990s, when a currency and debt crisis spread across Asia. But he called on corporations and investors to cease stockpiling dollars.
"Dollar hoarding appears to be rampant amid the scarcity of the U.S. currency," Lee said yesterday, according to the Yonhap News Service. "Some businesses and individuals seem to think they can get rich quickly by hoarding dollars amid the won's crash in value. But individual greed should be put aside in times of national crisis."
The concern among experts is that similar problems in other nations will exacerbate the challenges facing the United States and could lead to a global recession.