World Bank chief economist cites Asia, LTCM fund problems Date: Mon Oct 19 15:05:44 CDT 1998
GENEVA, Oct 19 (AFP) - World Bank chief economist Joseph Stiglitz charged on Monday that problems blamed for the financial crisis in Asia were also rife at troubled US-hedge fund Long-Term Capital Management.
Stiglitz, speaking at the annual board meeting of the UN Conference on Trade and Development, said woes blamed for Asia's turmoil, such as crony capitalism, conflicts of interest and high debt levels, were also hallmarks of the fund.
LTCM, a once high-flying and sophisticated hedge fund, narrowly avoided collapse last month with a 3.5 billion dollar bailout by 14 firms, including some sharehoders, led by the US Federal Reserve Bank.
Stiglitz charged that "therewas at least an appearance of crony capitalism" at LTCM, where "one of the principals was a former vice chairman of the Fed, which led the rescue effort."
While South Korea, Thailand and Indonesia were heavily criticized for acquiring mountains of debt, the "magnitude of debt (at LTCM) was unbelievable," Stiglitz said.
LTCM had an exposure of "somewhere between one to one and a half trillion dollars based on a capital of between three to five billion dollars," he said.
"And American and Swiss banks were lending to this higly leveraged hedge fund."
There was much talks in East Asia about (lack of) competition, he said. "And yet what's remarkable here is the concentration of economic power, the fact that the actions ofone firm could have a systemic effect on global capital markets," which was one justification for the bailout.
Stiglitz, in a 90-minute speach to UNCTAD delegates, focussed on the flaws of what he called the "Washington consensus" such as its number crunching singlemindedness and on outlining a new development plan taking into account social and psychological realities.
Friction between the World Bank and International Monetary Fund surfaced at their annual meeting in Washington at the beginning of October.
World Bank president James Wolfensohn told world finance officials it was now time "to go beyond financial stabilization" to engage in a debate "where mathematics will not dominate humanity, where the need for often drastic change can be balanced with protecting the interests of the poor."