Since the fall of communism, Washington has tried to encourage
"emerging nations" like Russia and South Korea to adopt nearly
unfettered capitalism. But the spread of the global financial crisis
from East Asia to Russia to Latin America has created a backlash.
Several governments have moved to introduce barriers to the free
movement of money across borders. They are putting controls on
foreign-exchange flows and foreign capital.
While the moves hardly represent a revival of the ideas of Karl
Marx, they do bespeak a world trying to figure out the right balance
of free markets and financial control in an era when one country's
falling currency can trigger another's economic chaos.
"It is an understandable overreaction," says Robert Litan, an
economist at Washington's Brookings Institution, of the controls.
So far, the Group of Seven most-industrialized nations have
discouraged any reversion to a less rigorous form of free enterprise.
A statement by the G-7 finance ministers and central bank
governors this week only promised a "cooperative international
approach" to support those countries hit by the turmoil in global
That statement and the call Monday by President Clinton for a
meeting of the G-7 in Washington within a month to craft long-term
solutions to the financial crisis encouraged investors. Stock prices
in New York and elsewhere advanced early in the week. "This is the
biggest financial crisis facing the world in a half century," Mr.
Clinton told the Council on Foreign Relations in New York. With a
quarter of the world's population living in countries in slumps, "the
industrial world's chief priority today plainly is to spur growth,"
But how to achieve this growth is the key question. Stock-market
investors welcomed the move by the scandal-harassed president to
emerge from his personal troubles and deal with the international
They suspected Clinton and the G-7 were hinting at a coordinated
drop in interest rates to prop up the global economy. But Hans
Tietmeyer, president of Germany's central bank, the Bundesbank,
denied this interpretation. "In Europe, no reason can be seen to
relax monetary policy," he said Tuesday.
Japan, however, already lowered interest rates slightly last week
to boost its dormant economy. The government now talks of a further
easing of monetary policy. In the United States, Federal Reserve
Chairman Alan Greenspan earlier this month noted that the central
bank is now more open toward a looser monetary policy. And Britain
has hinted it would go along with any plan to lower interest rates.
The major technical problem under review, particularly for
"emerging" nations, is the sudden flow of money - currency and
capital - out of a country when domestic and foreign investors become
Treasury Secretary Robert Rubin told Congress yesterday, "Just as
capital flowed into emerging markets indiscriminately, and that was a
mistake, capital is now flowing out indiscriminately, likewise a