NEWSMAKER: SECRETARY RUBIN January 16, 1998 The NewsHour with Jim Lehrer Transcript

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Indonesia signed a bailout plan with the International Monetary Fund that calls for tough economic reforms. In a Newsmaker interview, the man in charge of the U.S. government's efforts to aid the Asian economy, Treasury Secretary Robert Rubin, discusses the plans to relieve the current crisis.

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A RealAudio version of this segment is available. NEWSHOUR LINKS: January 12, 1998: Asia's countries move to correct the economic crisis. January 9, 1998: Indonesia's reluctance to follow the IMF plan sends markets tumbling. December 30, 1997: Bankers world-wide announce support for South Korea's ailing economy. December 29, 1997: The Boston Globe's Asia bureau chief discusses the region's economic crises. December 26, 1997: South Korea is promised an emergency $10 billion loan by early January. An Online Forum on the economic situation in Asia. November 26, 1997: What did the APEC summit accomplish? November 25, 1997: Asia's leaders search for answers at the APEC meeting in Vancouver. November 24, 1997: The APEC conference shows a grim economic forecast for Asia. October 28, 1997: The instability of Asian stocks causes worldwide fluctuations. Browse the NewsHour's coverage of Asia. OUTSIDE LINKS Treasury Department APEC International Monetary Fund

JIM LEHRER: Mr. Secretary, welcome.

ROBERT RUBIN, Secretary of the Treasury: Nice to be with you again, Jim.

JIM LEHRER: First, could you give us a kind of Asian damage assessment on where matters stand tonight.

SEC. ROBERT RUBIN: Well, Jim, there has been, as you know, very substantial financial instability in quite a number of Asian nations over the last several months. That instability has continued. I think it would be fair to say that in South Korea and in several other countries the situation has coalesced for the moment in the sense that there's been some stabilization. But I think the key--the key as we go forward is for these countries to implement the strong reform programs that in the case of those countries with I.M.F. programs they've agreed to, and then for the international community to support those reform programs with the official support that is a part of these I.M.F. programs.

Too early to say the worst is over?

JIM LEHRER: Too early to say the worst is over.

SEC. ROBERT RUBIN: I don't have a crystal ball, Jim, and I don't think anybody does. I think all that you can say is that these issues are of enormous importance to our economic interests, to American national security interests, and that the strong reform programs that are directed at the problems that gave rise to instability in the first place are the most likely path to recovery for these countries, and that recovery is enormously in their interest but it is also enormously in our economic and national security interest.

JIM LEHRER: Explain the U.S. interest. You and others in the administration have been working very hard with the I.M.F. to help these countries out. Why have you been so hard at work at it?

SEC. ROBERT RUBIN: Jim, American leadership has been absolutely central to this effort. I think it makes the point that the president so often does make that on the issues of the international economy--and I would say international issues more generally--in today's world the United States is really the only country that is in a position to provide the kind of leadership that is needed to deal with issues of this magnitude and importance to our country. The economic--our economic interests were deeply involved. Something over 40 percent of our exports have been going to developing and emerging countries around the world. Obviously, as these countries' economies weaken in the context of this financial instability, those markets for our exports diminish. And it's a particularly serious problem if the financial instability spreads from the Asian nations to other nations around the world. And it is for that reason that we have been so enormously focused on trying to work with these nations and the I.M.F. to promote financial stability. Secondly, as the currencies in these countries depreciate, that creates a competitive problem for American exports in world markets. And once again if the financial instability spreads to other emerging developing countries, then the magnitude of that problem is increased.

Will U.S. taxpayers end up paying for the mistakes of reckless bankers?

JIM LEHRER: Now, there's another side to this, as you know, Mr. Secretary, and it's been emerging in the last several days from members of Congress, Democrats as well as Republicans. And let's go through some of those. One of them is that, as Sen. Faircloth, for instance, said yesterday, that what we're up to is welfare for reckless bankers, that we are, in fact, bailing out people who took stupid risks to begin with and we're bailing them out with U.S. taxpayers' money.

SEC. ROBERT RUBIN: Jim, we would not spend one nickel to help investors or bankers. The only objective of these programs, at least from our point of view, is to restore financial stability in countries where we have an enormous economic and national security interest instability, and I'll get to the rest of the response, but take South Korea, for example: we have a tremendous national security interest in maintaining a stable South Korea and not creating the kinds of problems we have in that peninsula in the context of instability.

JIM LEHRER: Because of the problems, potential problems with North Korea?

SEC. ROBERT RUBIN: Exactly. The--some of the investors and bank credit extenders have, in fact, taken substantial losses in Asia. In other cases bankers will be made whole, but that is a byproduct, a byproduct of programs that have a totally other objective, which, as I said, is to restore financial stability and economic well-being. And our focus on that is--I've announced it several times--is because that's in our interest.

JIM LEHRER: What about the other criticism, another criticism, that it sends the wrong message to people who might be investing in the emerging markets, or might be involved in some kind of venture, say, hey, where they can relax because if they get in trouble, the I.M.F. and the United States of America will come along and bail them out?

The "moral hazard problem:" reliance on an I.M.F. bailout.

SEC. ROBERT RUBIN: That's a serious concern. It's a concern that we very much share. It's called the moral hazard problem.

JIM LEHRER: Moral hazard problem, right.

SEC. ROBERT RUBIN: Investors and extenders of credit should be subject to the discipline of the market. The problem, Jim, is that the mechanisms that exist in the international financial markets today do not permit or do not provide a mechanism for accomplishing that purpose and at the same time restoring financial stability. And, as a consequence, it is our view--and I think quite clearly--at least in my judgment--quite clearly the right view--that what we need to do is to focus on the crisis that's in front of us, which is to say restoring financial stability. At the same time we have been very involved with the Federal Reserve Board with whom we've been involved in this entire activity--the Federal Reserve Board and others--in working on mechanism to improve the architecture of the international financial markets for the future so that we can better deal with the problem that you've just mentioned.

JIM LEHRER: Another aspect that's been raised, okay, the U.S. has rushed to help these people out, but let's take Indonesia, for example. We've spent a lot of time on this program talking about Indonesia's problems. The problems of the Suharto government and the fact that so many members of the Suharto family had special interests here and there and were protected economically, everybody knew that. Why didn't the U.S., the I.M.F., and all those who are now rescuing Indonesia do something beforehand to prevent the problem?

SEC. ROBERT RUBIN: Jim, the I.M.F. program that Indonesia has entered into is directed at precisely the kinds of problems you've just mentioned. The key, of course, now is for Indonesia to adhere to that program and to implement the measures that are contained in that program. We've been focused on these sorts of issues for quite some time. I think it was about four years ago, if I remember correctly, that President Clinton at a meeting of the G-7 leaders in Naples proposed, and the great leaders agreed that there needed to be a review of the architecture of the international financial markets in order to make it as modern as the marketplace. And out of that came a number of initiatives that were aimed at prevention and at providing better mechanisms for dealing with crisis. And I think those have made a real difference. As I said a few moments ago, there is now a need, and we are very much involved in doing this, a need to carry that process on and to improve the mechanisms even further. More specifically, I can remember well over a year ago when the I.M.F. was very much focused on Thailand and a number of other countries as posing possible risks with respect to financial stability. And they did, in fact, go to those governments and discuss the kinds of reforms they felt needed to be accomplished to avoid the sorts of problems that we have today.

JIM LEHRER: But it didn't work, right?

SEC. ROBERT RUBIN: Jim, when things are going very well, countries have a tendency not to want to do what those who are a little more removed and analytic about the matter feel they should do. And I would say that what happened over the past five years is that you've had enormous prosperity in these countries, and the consequence is very large flows of capital into them and a tendency on the part of the people responsible for economic policy and for governance in these countries not to undertake the kinds of reforms that they were advised by the I.M.F. and others that they should have undertaken.

JIM LEHRER: So you had to have this fall before you could get these reforms?

SEC. ROBERT RUBIN: I think in this case, Jim, there were not too many political or governmental leaders who had the wisdom, I would say, to look down the road and put in place the kinds of reforms that were needed to avoid being subject to this kind of financial instability, although having said that, there were a number of emerging and developing countries around the world that, in fact, did put in place reform regimes. And there are quite a number of countries very much with the I.M.F.'s and our assistance right now that are putting in place reform programs to avoid getting caught up in this financial instability.

Will the I.M.F. impose western-style governing on Asian nations?

JIM LEHRER: Are you concerned at all, Mr. Secretary, that when this is all said and done that the I.M.F. is going to come--a lot of people are--not a lot of people--a few people are, I guess--that when this is all said and done, you're going to have these Asian governments who have been working on--been governing themselves based on their own standards, they're all going to have western-style governments because the I.M.F. is basically a western organization, and they've come in there and imposed western-style governing on them?

SEC. ROBERT RUBIN: I don't think this is a question of government or the processes of government, Jim. This is a question of problems in the economic structure of these countries. For example, in Korea, you had a situation where the banks were extending credits to these very large conglomerates on non-economic bases, and a lot of that, in turn, was a function of policy direction from the government. The result of that was a lot of credit extension that was not economically warranted, thereby creating unwarranted expansion in the conglomerates and bad loans for the banks. What the I.M.F. has been saying is that the banks should stand on their own two feet, that they should make all of the decisions on a commercial basis; the government shouldn't be involved in policy direction; and the conglomerates' credit should be obtained only a business-like basis; that that is the kind of structural reform that's contained in these I.M.F. programs.

JIM LEHRER: Finally, Mr. Secretary, is there any question in your mind that if the I.M.F. with the help of the United States had not moved in these last several weeks the way you have, there would have been an even worse situation than we're now confronted with?

SEC. ROBERT RUBIN: Jim, I think there was a very serious risk when this first started of a contagion that could have affected developing and emerging economies around the world with a financial instability that engulfed large numbers of countries that, in turn, could have had profound economic and national security effects on the United States. I do think that by having gotten involved as vigorously and as effectively as we have that at least for now that process, I think, has been avoided. I also think that the programs that are in place should work, although there are certainly no guarantees. And if they do work, we not only will have restored financial stability in these Asian countries, but we will have avoided the risk of the kind of contagion and spreading of this financial instability that you're talking about that has to be of enormous concern and is of enormous concern to the United States, given our interests in how those would be affected by a worldwide financial instability involving developing and emerging countries.

JIM LEHRER: All right. Mr. Secretary, thank you very much.

SEC. ROBERT RUBIN: You're more than welcome. Thank you Jim.

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