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Financial Post, Weekly edition, Wed 07 Jun 95, page 6

Keywords: International finance Foreign exchange Government policy United States

U.S. discards role of 'lender of last resort,' Rubin warns

Kelly McParland

Treasury Secretary Robert Rubin said yesterday the G-7 leaders who meet in Halifax next week must look for a better way to deal with international financial crises.

The U.S. will no longer act as ''the lender of last resort'' when countries find themselves in trouble, he warned.

Rubin, who will also attend the Group of Seven gathering, said the leaders must find ways to strengthen the institutions dealing with international financial problems, raise more money for dealing with crises and increase co-operation between regulators.

He also suggested fast-growing countries in Asia can afford to contribute more to supporting other nations with financial troubles.

Rubin said there are unlikely to be final decisions on many of the problems discussed at the annual G-7 summit, but Halifax will act as ''a way station in an evolutionary process'' toward improving international financial operations.

The biggest concern will be modernizing development banks and institutions such as the International Monetary Fund, which have become outdated as financial markets increase in complexity.

The peso crisis in Mexico, for which the U.S. organized a US$50- billion rescue operation, showed how ''poor policies and markets that lack depth, in very short order, can destroy a nation's finances and threaten the spread of financial stability.''

Rubin praised the austerity plan imposed by Mexican president Ernesto Zedillo and said it broadly conforms with remedies the U.S. had in mind. Washington has lent Mexico US$10 billion so far and another $10 billion is available. It's not clear whether Mexico will need the money, he said.

While Rubin pointed to ''positive signs'' in the Mexican market, he said the U.S. doesn't want to find itself stuck dealing with similar crises in other countries.

Instead, institutions like the IMF must be beefed up, with greater ability to track economic developments and access to large amounts of conditional finance.

Sources of finance should include ''countries which benefit from a stable international monetary system . . . including the newly prosperous nations of Asia.''

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Revised: June 3, 1995

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