Weekend Report: Brazil's Bailout on the Way; G7 Issues Communique
By Justin Lahart Senior Writer
The early market reaction to this weekend's International Monetary Fund/World Bank and Group of Seven meetings is less than overjoyed, if Tokyo's open is any indication.
The Nikkei 225 zoomed lower from the 8 p.m. EDT start of trading, lately off 149.43, or 1.1%, to 13,074.26. The benchmark Japanese index is on pace for yet another 12-year low, although it has bounced from being down more than 1.6% minutes ago.
New Zealand's NZSE 40 was up 1.5%, while Australia's All Ordinaries index was down 0.1%.
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Late headlines have an IMF panel calling capital controls "not appropriate" to deal with fundamental economic imbalances. The panel also called for Japanese action on banking reform and urged Russian moves to boost the ruble and to develop a "cooperative debt solution."
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While Washington chauffeurs moored their limousines outside various IMF/World Bank and G7 functions today, President Fernando Henrique Cardoso apparently won the Brazilian election by an overwhelming margin.
The meetings in the capital and Cardoso's victory dovetail -- for now that the election is out of the way, details of Brazil's bailout package should be hammered out within days, an IMF official said today. Upwards of $30 billion is expected for Brazil, but what the terms will be is less clear. Also unclear is what type of broader plan policy makers envision for the whole of Latin America. (TheStreet.com's Peter Eavis, reporting from Washington, offers a detailed analysis of the Brazilian situation in a story today.)
In the communique they released late Saturday, G7 finance ministers again acknowledged that the balance of risks to the world economy has shifted toward recession and that member nations will do what they can to encourage growth. Japan, naturally, was the object of special attention.
"The Japanese authorities outlined their intention to strengthen the confidence in the financial system by promptly establishing a framework to stimulus to boost domestic demand-led growth," reads the communique. "While noting the steps taken by the authorities to date, we stress the importance that we attach to the swift and effective action to strengthen the financial system, including the prompt enactment of measures to support viable banks with public assistance in sufficient amounts to be provided swiftly with appropriate conditions."
Along with the usual we-support-the-Fund rhetoric -- unsurprising given that Congress still hasn't passed IMF funding -- the finance ministers suggested that they will explore President Clinton's proposal that the IMF set up an emergency lending fund. They also "agreed on the importance of adapting the IMF to ongoing changes in the world economy," and agreed to work on ways to strengthen international financial system including increasing transparency, bolstering existing institutions and developing better surveillance.
Though reaction to the G7 meeting seems pretty positive, it has been clear over the weekend that the member countries are not all singing in the same chorus. Europeans -- more isolated from the economic turmoil of Asia and Latin America than the U.S., Canada and Britain -- do not see such a pressing need for change. After all, Russia, where their exposure was far greater than that of other G7 nations, is already basically gone.
And at least one observer wasn't impressed by the G7 statement. "It sounded a little bit empty," George "Billionaire Financier" Soros told reporters today.