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By Gerard Baker and Stephen Fidler
Financial Times
February 14, 2001
WASHINGTON -- Paul O'Neill, the U.S. treasury
secretary, on Wednesday indicated the Bush
administration would take a strongly skeptical view of
official intervention in global markets to help
stabilize the world economy.
In an interview on the eve of his departure for his
first meeting of finance ministers and central bank
heads of the Group of Seven leading industrialized
nations, Mr. O'Neill rejected the notion that crises
were an inevitable feature of capitalism requiring an
official backstop to help resolve them.
He said the failure to stop crises from developing was
a failure to let markets operate freely. "It doesn't
have anything to with the failure of capitalism. It's
to do with an absence of capitalism."
Though Mr. O'Neill was careful not to rule out U.S.
involvement either in coordinated currency market
intervention, or leadership in International Monetary
Fund operations to help countries in financial
difficulties, he suggested more attention should be
given to using free markets to prevent crises from
developing.
"Why do we have to intervene? Especially why do we have
to intervene on a crisis basis?" Crises "are great
media fodder but they're not real hot for anybody
else."
He strongly indicated he shared concerns about what
economists dub "moral hazard," the process by which the
certainty of a bailout in the event of a crisis leads
investors to behave recklessly. "When you don't have
risk associated with investment, you don't really have
capitalism. You have a kind of socialized lottery
system."
Expressing confidence that free markets should be able
to forestall crises before they happened, Mr. O'Neill
likened the IMF and the World Bank to a fire company
that should never have to respond to emergencies. "In
an ideal world the fire company never leaves the
firehouse ... hopefully they learn how to play chess
really well."
In what is clearly intended to be a theme-note of the
new administration's approach to international economic
discussions -- and a contrast to the Clinton
administration's often aggressively didactic approach
-- Mr. O'Neill said he was mostly interested in listening
to what other governments had to say at this weekend's
meeting.
"I would not characterize what I want to do at this
meeting as bringing a message," he said.
Though he praised the G7 process as a means by which
the world's policymakers got to know each other, he
sounded a note of skepticism about the value of the
discussions. "I'm interested in watching the process
and finding out what others think the value is that's
created by this process."
Saturday's G7 meeting in Palermo, Sicily, will be the
first since the Bush administration took office last
month, and the first since U.S. economic growth slowed at
the end of last year.
For the first time in almost a decade, U.S. growth is
likely to slip behind that of Europe this year. The
Federal Reserve, the central bank, has cut interest
rates by 1 percentage point since the start of the
year, and this week Alan Greenspan, the Fed chairman,
expressed cautious optimism that the economy may have
bottomed out.
Mr. O'Neill expressed concern about immediate economic
prospects but seemed optimistic that the U.S. would
recover quickly.
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