Date: Tue, 15 Sep 1998 21:17:31 -0700 (PDT)
From: MichaelP <[EMAIL PROTECTED]>
To: "unlikely.suspects": ;
Subject: Guardian version of Soros' in US congress
Capitalism falling apart, says Soros
By Alex Brummer, Financial Editor
Guardian (london) Wednesday September 16, 1998
The financier George Soros warned last night that the global
capitalist system is in danger of imploding following the panic flight
of capital from the emerging markets of Latin America, in the wake of
the Russian crisis.
In testimony to the US Congress, Mr Soros said: "The global capitalist
system that has been responsible for our remarkable prosperity is
coming apart at the seams."
He said there was "general panic" in Latin American markets and that a
financial collapse in Brazil could spread to Argentina. His remarks
came amid reports that the Latin American countries are negotiating
with international lenders to put together a $100 billion emergency
loan fund for the region.
The latest Soros intervention, coming in the aftermath of this week's
efforts by President Clinton and the Group of Seven industrial
countries to restore confidence in the global economic system, appears
certain to shake financial markets.
When Mr Soros called for a rouble devaluation in August he sparked a
financial and political crisis in Russia which resulted in a collapse
in the rouble, costing Mr Soros's investment funds an estimated $2
billion.
In his testimony, Mr Soros lends his weight to the Clinton
adminstration's demand that Congress immediately authorise its $18
billion contribution to a capital increase for the International
Monetary Fund, which is rapidly running out of cash. He also revises
his own idea of an international insurance fund to protect countries
against speculators such as himself.
Mr Soros, the chairman of Soros Fund Management which invests on
behalf of rich savers, said the default of Russian banks on their
obligations and the subsequent shutdown of Malaysia's financial
markets to foreigners has led to a "global credit crunch in the
making".
"The flight of capital has how spread to Brazil and put the rest of
Latin America at risk," he argued.
His comments follow the decision of the Brazilian authorities to raise
interest rates as high as 50 per cent to protect the country's
currency - the real. Similar moves were attempted in Moscow before it
succumbed to pressure to devalue with disastrous consequences.
Mr Soros cautioned US policymakers against complacency just because
most of the trouble is occurring outside the US. He said the global
capitalist system involved not only free trade but, even more
importantly, the free movement of capital in a "gigantic circulatory
system" in which capital was sucked up by financial markets and
institutions at the centre and pumped out to the periphery.
The Asian crisis reversed the direction of that flow, Mr Soros said.
Capital began to flee the periphery, at first to the benefit of the
financial markets at the centre.
The US economy then enjoyed the best of all possible worlds as cheap
imports helped to keep inflation in check and stock prices moved to
new highs.
But Soros said the crisis had reached the point where distress at the
periphery was not good for the centre.
"The pain at the periphery has become so intense that individual
countries have begun to opt out of the capitalist system, or simply
fall by the wayside," he said.
He said the programmes of the international monetary authorities had
not worked and those authorities had been unable to reassure the
financial markets.
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