US troubleshooter urges tough medicine

Clinton's man believes in market-based solutions. Michael McKee reports
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The Independent Online
As A dozen or so Japanese photogr aphers jostled for position, Japanese Finance Minister Hiroshi Mitsuzuka smiled broadly and pumped the hand of Deputy US Treasury Secretary Lawrence Summers at a meeting two weeks ago in Tokyo.

Summers stood frozen, unsmiling. From the US perspective, this was not a social call. For months, Clinton administration officials had warned the Japanese they must do more to stimulate growth at home.

With other Asian economies imploding, Summers was once again called upon to prescribe the tough medicine - to tell Mitsuzuka that Japan was running out of time to get its economic house in order.

"I come at a time of real concern about the outlook for the Japanese economy," Summers said after the meeting. "Growth and stability in Japan is critical for growth and stability in this region."

A week later, the Japanese government had closed one of the country's biggest banks and its fourth-largest securities firm, and Prime Minister Ryutaro Hashimoto had admitted to President Bill Clinton that Japan's economic programme was not working.

No one, least of all Summers, would suggest his presence spurred the Japanese to action. Yet increasingly, the 42-year old Harvard-trained economist is at the centre of whatever economic crisis captures the world's attention.

Lately it has been the Asian currency crisis that has consumed his time and energy. This weekend, he is visiting London and Kuala Lumpur on his second round-the-world trip in a week, seeking support for the International Monetary Fund-centred bail-out plan he helped to craft in Manila last week to aid the weakened South-east Asian economies.

Under the new facility, countries cannot get bilateral assistance from other nations without accepting the strict economic conditions imposed by the IMF. That would ensure the sick countries of Asia would follow Summers' prescription: market-oriented policies based on sound economic principles.

Summers, previously the chief economist at the World Bank, strongly believes in the discipline of market-pleasing reforms. "What is most important in any of these cases is policies to strengthen fundamentals," he said.

Not everyone is convinced his path is right for Asia. "In most of these countries, the fundamentals are pretty good," said Jeffrey Sachs, Summer's former colleague at Harvard. "I'm not sure that so far Washington, including IMF and the US government, has hit on really convincing answers to this."

Still, it is a message Summers has delivered around the globe this year. In Africa, for instance, he announced a change in Clinton administration policy: From now on US aid would be tied to economic performance.

"Countries pursuing the deepest market-oriented reforms are likely to capture the lion's share of investments," he told delegates to the African Development Bank annual meeting in June.

While some might disagree with Summers' analysis, no one doubts his qualifications to make it. His mother and father were economists, and two of his uncles - Paul Samuelson on his father's side, Kenneth Arrow on his mother's - won Nobel prizes in economic science.

After earning his PhD at Harvard in 1982, he became that university's youngest tenured professor at the age of 28. He spent time on the staff of the White House Council of Economic Advisers in the 1980s before joining the World Bank and then the Clinton administration's Treasury Department in 1993.

For Summers, economic policy has a broad reach. The father of a 4-year- old son and twin 7-year-old daughters, he is a passionate advocate of education, particularly for young girls - an argument that does not sit well in some patriarchal developing nations.

For Summers, however, it is more than parental pride. "Studies have shown," he tells anyone who will listen, "that educating young girls is one of the most economically efficient steps a nation can take."

Blunt and direct, Summers has engendered as many enemies as he has won admirers. At the same time, he can be politically tone-deaf. Even so, Laura D'Andrea Tyson, a former chairman of the Council of Economic Advisers in the Clinton White House, called Summers both a "brilliant economist" and a "team player" in a New York Times profile earlier this year.

His sometimes abrasive personality has raised questions about his political ability needed to succeed Treasury Secretary Robert Rubin. Yet it has served the administration well at times - when Congress refused a Clinton administration request for funds to help Mexico through its crisis in 1995, Mr Summers found a way to bail out Mexico without congressional involvement.

Copyright: IOS & Bloomberg

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