The New York Times
October 6, 1998
Latin Americans Say Russian Default Is Hurting Their Economies

          By PAUL LEWIS

                 WASHINGTON -- Increasingly angry at what they consider the
                 lenient treatment that Russia received in its $4.5 billion bailout by
          the International Monetary Fund, Latin American officials and economists
          warned Monday that the programs being offered to protect their own
          countries were too paltry.

          Guillermo Ortiz, Mexico's central bank governor and former finance
          minister, said that faced with the mounting financial pressures on Latin
          America and the rest of the developing world, the $90 billion the United
          States wants to give the monetary fund in extra lending money would be
          adequate "if things go well, but not enough for a bad scenario."

          By some calculations, he said, the developing world might need $200
          billion in new loans by 1999.

          Ortiz's warnings came at a seminar here during this year's annual meeting
          of the World Bank and the IMF. When Russia defaulted in August on its
          huge foreign debts and the United States and other major powers allowed
          it to happen, he said, South America's ability to withstand the global
          financial crisis was seriously undermined.

          "Until then we were doing fine," he said. "But everything changed after

          What clearly angered Ortiz and other officials at the seminar was the
          strong political and financial backing that the United States and other
          major powers gave Russia right up to the moment it defaulted.

          "Russia was treated like a member of the Group of Seven," Ortiz said,
          referring to the world's most powerful nations, at whose behest the
          monetary fund lent Russia $17 billion. "It was unthinkable it could fail," he

          He added that while Mexico could survive "a period of market instability,
          it must be temporary or the situation will be out of control."

          Ortiz said Russia's default made investors around the world wary of all
          emerging market countries, including those in Latin America.

          Finance Minister Eduardo Aninat of Chile said: "It's the packaging effect.
          Analysts don't differentiate between regions, countries or sectors

          "Latin America is being buffeted by external shocks this time, it is not the
          source of the shocks," said E. Gerald Corrigan of Goldman Sachs and a
          former president of the New York Federal Reserve, alluding to the
          Mexican peso's collapse in 1995 and the financial turmoil that it

          All ministers and officials speaking at the seminar, entitled "Latin America:
          a steady ship in troubled waters?" promised that their countries would
          continue the free-market-oriented economic reforms they have introduced
          in recent years, selling off state-owned companies and encouraging
          private business.

          But they also insisted that the United States, other important nations and
          institutions like the World Bank and the IMF must be ready to help.

          The Brazilian finance minister, Pedro Malan, who was greeted with cheers
          when he announced the apparent re-election of President Fernando
          Henrique Cardoso, pledged the government to impose painful new
          austerity measures to reduce the budget deficit. "We interpret the election
          as a mandate to do what we said we would do," he added.

          He recalled that early in September the finance ministers and central bank
          governors of nine Latin American countries had met with World Bank and
          IMF officials in Washington and vowed "to deepen our reform efforts."

          In Brazil, consequently, there would be no changes in the government's
          exchange rate policy and no resort to controls on outflows of money even
          though the country has seen about $30 billion of its reserves drain away
          since July.

          But he said nothing about the big financial aid package he is rumored to
          be negotiating with Washington, the World Bank and the IMF and which
          some officials now say could total as much as $60 billion.

          He did evoke the possibility of a serious breakdown in Latin America's
          largest economy -- which is bigger than those of South Korea, Malaysia
          and Thailand combined -- by saying the world now has "an historic
          opportunity to show how by acting together we could have a successful
          experience at crisis prevention."

          So far, Latin American economies have weathered the international crisis
          relatively well. The IMF currently expects them to grow at a rate of 2.8
          percent this year and 2.7 percent next year, down only 0.6 percent and
          1.6 percent respectively on what it predicted last May.

          But international confidence in the region's currencies is vulnerable to the
          balance-of-payments deficits that all major Latin American countries are
          running. They currently range from 3.6 percent and 4.4 percent of total
          output respectively for Brazil and Argentina, to 7 percent in the case of

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