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STOCKHOLM (Reuters) - International financier George Soros said Thursday
the world economy is on the brink of a slowdown as the crisis intensifies in
Asia.
"You have the potential of a breakdown of the entire system if you have a
slowdown of economic activity in the center even as inflationary pressures
mount," Soros told a Stockholm International Peace Research Institute
(SIPRI) conference.
"We're on the edge of it, yes."
Soros, asked if his companies had taken up new positions in Asia, told the
conference: "Yes, I should hope so."
He said Japan's situation is worrying for the world economy and shows there
is more yet to come.
"Already Japan is suffering from conditions reminiscent of the 1930s . . .
and, after all, Japan is the second-largest economy of the world, so we are
not yet out of the woods," Soros said.
Asked if the G7 should step in to support the declining yen, Soros said, "I
think everybody agrees that further decline in the yen would be detrimental
for the world economy, but the question is whether you can actually stop the
decline by intervention alone.
"The Asia crisis doesn't abate. It can now be seen that it will take longer
to resolve than was seen at the beginning, so there's a possibility of a
worldwide slowdown."
The main fear about Asian markets is that the yen's fall would drag
regional currencies lower and eventually push China into devaluing its
currency, the yuan, analysts said.
Soros said some Asia countries have improved their economies since the
crisis began.
South Korea had started correcting its external balance but, along with
some other countries in the region, had not made tough-enough structural
reforms, such as in the banking sector.
"The Asian crisis is now nearly a year old, but the problems of the banking
system have still not been resolved," Soros added.
Soros said the IMF had not done enough to help Asia's currencies, adding
there was an urgent need to improve them because the crisis had not yet
played itself out.
"In my opinion, the conditions imposed by the IMF programs did not go far
enough. They tried to stabilize the currencies but they didn't grapple with
the underlying structural problems -- the insolvency of the banking
systems."
He said the IMF imposed conditions on the borrowing countries but not on
the international banks that lent to them.
On Wednesday, U.S. Federal Reserve Chairman Alan Greenspan said there were
few signs of a turnaround for Asia's battered economies and the likelihood
was growing that the IMF would run out of cash.
JW
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