The Clinton administration and Federal Reserve Chairman Alan Greenspan warned Congress Friday the U.S. economy could suffer if an international rescue effort fails to ease the Asian currency crisis.
Treasury Secretary Robert Rubin and Greenspan were leadoff witnesses as Congress began examining the $100 billion bailout assembled to help South Korea, Indonesia and Thailand stabilize their economies.
Rubin told the House Banking Committee that if the financial turmoil widens and engulfs other countries, the risk to the U.S. economy would be far greater.
“If the financial instability were to spread more broadly to other emerging markets, then the impact on American workers, farmers and businesses could be much greater because roughly 40 percent of our exports go to all emerging markets around the world,” Rubin said.
The effort to win congressional support for the U.S. portion of the bailout effort was meeting strong opposition from both conservatives and liberal in Congress.
Rubin and Greenspan said the largest bailout program in IMF history has not overcome the crisis and would fail without U.S. support.
“I should like to stress that the significant degree of volatility that continues to exist in Asian markets indicates exceptionally high levels of uncertainty, bordering on panic,” Greenspan said.
He said improvement is unlikely for markets in the region until they are convinced the countries are remedying serious weaknesses in their banking systems.
“The stabilization of those banking systems is crucial, if confidence, that has been so thoroughly undercut in this most debilitating crisis, is to be restored,” Greenspan said.
Greenspan said U.S. investors have lost about $30 billion since the crisis erupted last June in Thailand and worldwide losses exceed $700 billion in plunging stocks alone, not counting bonds and real estate.
The appearance Friday by Rubin, Greenspan and Defense Secretary William Cohen was an effort to underscore what America has at stake in stabilizing a crisis that has led to plunging currencies, falling stock markets and rising bankruptcies.
“We are at a turning point in terms of how we deal with this crisis. If we turn away and think we can exist in splendid isolation, we will be sadly mistaken,” Cohen said, arguing that the United States has significant national security interests at stake in the region.
An unusual coalition of liberal Democrats and conservative Republicans wants to block U.S. participation in the bailout.
In his State of the Union message Tuesday, Clinton appealed for reason in the current troubles, urging the nation to minimize the fallout “for a safer world.”
House Banking Committee Chairman Jim Leach, R-Iowa, said it is crucial that investors, including international banks who made bad loans, share responsibility for the losses.
“This Congress is not going to authorize anything that amounts to a bailout of financial institutions,” Leach said.
Opponents of the bailout range from House Democratic Whip David Bonior of Michigan on the left to Republican Sen. Lauch Faircloth of North Carolina on the right.
Liberals complained that IMF money should not go to countries that oppress their workers, degrade the environment and rob jobs from American workers.
The AFL-CIO’s executive council adopted a resolution this week urging Congress to reject U.S. participation in the bailout unless IMF reforms stress worker rights and the environment.
The administration is seeking congressional support for $18 billion to replenish IMF resources. But opponents are pushing two different pieces of legislation.
One measure would limit the administration’s ability to use the Exchange Stabilization Fund to provide emergency loans. It was this fund that Clinton used to offer Mexico $20 billion in support three years ago.
A second bill, by Rep. Ron Paul, R-Texas, would withdraw the United States from the 182-nation IMF.