SUNS  4296 Wednesday 7 October 1998

Washington, Oct 5 (IPS/Abid Aslam) -- President Bill Clinton sought Monday to rally international support for US-led efforts to overhaul the institutions and rules making up the global financial
'architecture'.

This was "imperative if we are to maintain global support among ordinary citizens for free markets and ultimately for free government," Clinton told world finance ministers.

His statement came 24 hours after protestors surrounded International Monetary Fund (IMF) headquarters here to demand protection for "people, not profit", cancellation of the poorest countries's debts - and that the IMF be scuttled for its "sado-monetarism".

Clinton, addressing financial leaders Monday - even as a Congressional committee weighed his possible impeachment - emphasised that "we must ensure that the international financial architecture...will lessen and manage the risks in the global markets to allow countries to reap the
benefits of free flowing capital in a way that is safe and sustainable."

The US leader spoke in support of recommendations from a 22-nation group he convened to find ways of keeping global finance on an even keel. The 'Group of 22' (G-22) - made up of the 'Group of Seven' (G-7) major industrial powers and 'Group of 15' leading emerging market economies - met here Monday for talks parallel to discussions at the International Monetary Fund's (IMF) and World Bank's key policy-making committees.

The new confederacy, assembled by Washington earlier this year, released Monday reports outlining long-term reforms. While these offered no quick fix to the current crisis, "today's short run was yesterday's long run," said the Bank of England's Mervyn King.

Recommendations included reforms in banking regulation, greater openness by governments in disclosing economic data, and ways to prevent future crises by ensuring that the private sector would have to suffer losses for bad investments.

"These (ideas) will be discussed by the IMF. They have all the tools for carrying forward this process," said Italian Deputy Finance Minster Mario Draghi, co-chairman of a G-22 working group on financial sector reform.

Righting the world financial system "is not a task for the G-7 alone...this is an issue which, as we see, affects every nation in the world," Clinton said. "The expansion of international markets and the
growth of the global economy over the past 50 years has helped to lift millions and millions of people out of poverty."

However, "the fast-paced, high-volume global capital markets also can react swiftly and harshly when countries stray from sound policies and the markets also can overreact, subjecting even countries following good policies to severe pressures," he said.

In responding to the current crisis, "every leading industrial economy has a role to play, including the United States by securing full support for IMF funding," Clinton said. This was a reference to an U.S. administration request, stalled in Congress, for $18 billion for the international financial institution.

Some $3.5 billion of that sum would go to an emergency line of credit to help the IMF to cope with financial crises, and the rest would go toward a 45% increase in the agency's capital base, seriously eroded by multi-billion dollar bailouts in Asia and Russia.

Passage of that funding before Congress adjourns this month was key to adoption of Clinton's proposal, made Friday, to accelerate IMF emergency loans to countries deemed to have sound economic policies but nevertheless threatened with investor panic.

The IMF's policy-making 'Interim Committee' stated Sunday that members would "explore" such a scheme but, several nations including Britain and Japan, said agreement on U.S. initiatives would depend on whether Washington paid in its $18 billion contribution to the Fund.

Ideas for restoring and maintaining peace in financial markets have been as numerous as black limousines in Washington during this week's World Bank-IMF annual meetings. These include broad principles, such as transparency in government and private sector accounts, and specific
ideas for a new global financial regulator cobbled together from parts of the IMF, World Bank, and Bank for International Settlements.

Officials have failed to agree on specific long-term reforms and measures to deal with the immediate crisis. Broad agreement that deflation is the greater threat than inflation, for example, has failed to persuade Germany to ease interest rates as part of a concerted effort to kick-start the global economy.

Political tension between and within the many international groupings huddled in meeting halls around Washington has contributed to the lack of consensus.

Members of the G-24 (developing country group) voiced unease about Washington's new 'Group of 22', which exists outside the established multilateral system. "It's creating a divisive situation and seems undemocratic," one senior official said.

There was acrimony among G-7 members, who also met over the weekend. U.S. proposals were in competition with French and German ideas for strengthening the IMF's and World Bank's policy-making committees. These proposals were seen by some as a bid to counter U.S. domination
of the institutions.

At the same time, political analysts said the so-called 'Willard Group' - an increasingly assertive, US-sponsored financial think tank - had fallen into disfavour with smaller European countries such as the Netherlands and Switzerland.

Clinton recalled Monday that official discussions on reforming the international financial architecture dated back to the G-7's 1994 summit in Naples, Italy. "It seems like a century ago when you think of
how quickly the world has changed since then," he said.