Greenspan says Asian nations at fault for currency woes Fed chairman warns against global investment controls


WASHINGTON -- Southeast Asian governments are primarily to blame for the recent currency troubles in that region, and any attempt by these nations to place controls on the cross-border flow of investment will have "adverse, unintended consequences," Federal Reserve Chairman Alan Greenspan said yesterday.

Thailand was forced to devalue its currency, the baht, after it came under speculative attack in early July.

The baht has lost more than half its value since its June peak against the U.S. dollar, and the contagion spread to Indonesia, Malaysia and the Philippines.

Without mentioning him by name, Greenspan rejected the argument by Malaysian Prime Minister Mahathir Mohamad that speculators, including U.S. investor George Soros, were responsible for the crisis.

The Fed chairman, who met last month in Hong Kong with finance ministers from all of the affected countries, said "poor investment decisions" by their governments, as well as unsound bank lending, particularly lending to real estate speculators, were to blame for the forced currency devaluations.

"These countries became vulnerable as markets became increasingly aware of a buildup of excesses," Greenspan said in a speech at an annual monetary conference at Washington's Cato Institute.

The Fed chairman did not discuss the state of the U.S. economy, except to note the importance for all central bankers of maintaining price stability "if we seek maximum sustainable growth."

Greenspan highlighted such excesses as overvalued exchange rates, high current account deficits, and sharp increases in asset values.

"As a consequence, these countries lost the confidence of both domestic and international investors, with resulting disturbances in their financial markets," he said.

Malaysia's Mahathir, to the dismay of investors in the region, has pinned most of the blame for the slide in its currency on foreigners. Mahathir regularly condemns Soros as a principal culprit in Malaysia's meltdown.

The Malaysian leader has even suggested that the sell-off in Asian markets is part of a Jewish "agenda" to keep Muslims in his country poor.

Greenspan, in contrast, said sound macro-economic policies and the timely release of detailed and accurate financial data "is a critical element to the maintenance of financial stability." The Thai crisis, and the Mexican peso devaluation in 1995, made it clear that the level of disclosure was too little, he said.

Countries should provide more comprehensive public information on their financial conditions, he said, "including current data on commitments by governments to buy or sell currencies in the future and on nonperforming loans of a country's financial institutions."

Greenspan said instantaneous communication has created "the ability to generate losses at a previously inconceivable rate." As a result, "a disturbance in one market segment or one country is likely to be transmitted far more rapidly throughout the world economy than was evident in previous eras," he said.

The trade-off is that the changes in communications technology in recent years, and the new financial instruments and risk-management techniques they have made possible, are increasing trade and investment and "patently contributing to ever higher standards of living around the world," the Fed chairman said.

Thailand shocked investors in mid-August when it disclosed that it borrowed $23.4 billion in swap contracts -- equal to about two-thirds of its foreign reserves -- in its failed defense of the baht.

The Thai government, as part of its bailout agreement with the International Monetary Fund, pledged to announce its foreign reserves and remaining swap contracts twice a month.

Since its first announcement, however, the Thai central bank has publicly updated only its reserve total, not its borrowings.

Bank of Thailand Gov. Chaiyawat Wibulswasdi, asked yesterday about the original pledge, said "there has not been any significant change in swap obligations," reporting that the figure was not necessary.

Pub Date: 10/15/97

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