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- WASHINGTON (Reuters) - International financier George Soros said Tuesday
Russia's economic crisis would worsen, Brazil was on the brink, and the
world's lender of last resort -- the International Monetary Fund -- was
ill-equipped to fend off a global meltdown. Painting a bleak picture of
the future for the world economy, Soros told U.S. lawmakers that financial
crises gripping Asia and Russia had already spread to Latin America, where
panic was setting in, and that Malaysia's foreign currency controls could
setback Asia's recovery. The multibillionaire philanthropist, who chairs
Soros Fund Management, warned that the global capitalist system was coming
undone. He also said the U.S. Federal Reserve may need to cut interest
rates to spur growth, and called on the U.S. Congress to give $18 billion
to the IMF to replenish the lending agency's reserves, drained by bailouts
for Russia and three crisis-hit Asian states. But Soros told the House
Banking Committee that even a fully funded IMF could not end the market
turmoil.
``Replenishing the capital of the IMF will not be sufficient to resolve
the global financial crisis.'' The IMF engineered multibillion-dollar bailouts
last year for Indonesia, South Korea and Thailand to avert the region's
economic collapse. In July the fund assembled a nearly $23 billion rescue
package for Russia. But market confidence evaporated, Russia devalued the
rouble and defaulted on some foreign debt, and Russian President Boris
Yeltsin's surprise decision to ditch his brash young prime minister, Sergei
Kiriyenko, did nothing to reassure frightened investors. Soros said the
meltdown in Russia had exposed new weaknesses in the international banking
system. ``A global credit crunch is in the making,'' he told the committee.
``The global capitalist system which has been responsible for the remarkable
prosperity of this country in the last decade is coming apart at the seams.''
Soros said the downside for the Russian economy was ''practically limitless''
after the collapse of the rouble and a big debt default. He said Russia's
banking system had been wiped out by the latest economic turmoil. ``The
situation in Russia is quite dire, very, very serious,'' Soros told the
panel. ``Unfortunately, I cannot be optimistic for the outlook because
the government that fell was actually the best government Russia could
have produced,'' he added, referring to Kiriyenko's team. Soros said the
new government, led by former Foreign Minister Yevgeny Primakov, was ``a
reversal to the regime that has collapsed and I do not think that you now
have people that will be able to deal with the situation, this dire emergency.''
Soros blasted Malaysian Prime Minister Mahathir Mohamad for imposing foreign
exchange and capital control measures. ``The effect on the economy will
be disastrous,'' Soros said, adding: ``The measures taken by Malaysia will
hurt the other countries which are trying to keep their financial markets
open because it will encourage the flight of capital.'' The measures, designed
to contain speculation and shield the economy from turbulence in the global
economy, marked a giant step away from the free market policies which had
underpinned Malaysia's stunning growth since the mid-1980s. Ironically,
Mahathir has accused Soros and other speculators of attacking Malaysia's
currency, causing the country's worst economic slump in decades. Soros
also warned the House committee of ``general panic'' in Latin American
markets. ``The flight of capital has now spread to Brazil and if Brazil
goes, Argentina will be endangered.'' With Brazil ``in the eye of the storm'',
Soros said it was critical that the United States and other Western powers
support emergency loans from the IMF. IMF Managing Director Michel Camdessus
said late Tuesday the fund had not received any requests from Latin America
countries for emergency loans, but added: ``In this quickly changing world
anything is possible.'' A World Bank official said multilateral lending
agencies were preparing a package of loans worth $4.5 billion for Argentina
should it be unable to access capital markets. But Soros said the IMF might
not have enough cash to help, because Congress has refused to approve its
funding. The Senate has agreed to give $18 billion to the IMF, but the
legislation has stalled in the House of Representatives.
To help calm markets, Soros said U.S. monetary authorities may need to
cut interest rates. ``If my expectations are correct then I think it will
be necessary.'' Other Group of Seven major industrial nations should consider
doing the same, he added. ``I think it is very important that they should
work together. But I think that some members -- particularly the Germans
-- object to any appearance of coordination, which makes it more difficult,''
he said.
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