Edition: U.S. / Global

INTERNATIONAL BUSINESS; I.M.F. May Be Closer To Lending-Curb Idea

Published: February 3, 1998

The International Monetary Fund, looking for ways to avoid a future Asia-style financial crisis, may be moving in the direction of endorsing rules that would prevent another surge in foreign bank lending. Such a surge played a key role in the Asian crisis.

The Clinton Administration distances itself from such proposals, fearful they may draw criticism in Congress, which is considering an Administration request to approve $18 billion in financing for the I.M.F. The concern is that any attempt to discourage too much lending through controls may sound like tampering with free markets, a potential obstacle in Congress.

The possibility of an I.M.F. shift came Sunday in an interview with Stanley Fischer, the I.M.F.'s first deputy managing director, who was here for the annual World Economic Forum. Mr. Fischer, who is second-in-command at the I.M.F., insisted that he spoke only for himself, not the organization's directors. But his remarks were the first public acknowledgment by an I.M.F. official that discouraging the flow of short-term loans might be a good idea.

''The I.M.F. recognizes the problem of surges of short-term capital across borders and the need to find ways to deal with that,'' Mr. Fischer said. He then suggested that ''the Chilean scheme is one that needs to be considered.'' Chile discourages short-term loans from abroad by taxing those of a year or less. The goal is to encourage long-term investment.

The I.M.F. usually pushes member countries toward unrestricted open market systems. That is certainly a condition of the huge I.M.F. bailout loans now going to South Korea, Indonesia and Thailand. In a speech last September, however, Mr. Fischer said that capital controls could be acceptable in emerging-market countries, but only for a brief ''transitional'' period. Yesterday, he greatly lengthened the period.

For countries that can make them work, he said, ''capital controls could be acceptable to the I.M.F. for a transitional phase until the financial system of a country is sufficiently strong to deal with surges in short- term loans from abroad.'' The implication was that a developing country might apply capital controls for years while it constructed a financial system with all the checks and rules that exist in industrial countries like the United States.

Recognizing the problem, Mr. Fischer said, ''None of what I am saying is a reason for a country to delay fixing its financial system.''

He was among hundreds of government leaders, chief executives, financiers, investment bankers, artists, scientists and economists gathered here for a six-day version of the kind of Renaissance weekends that President Clinton has popularized in the United States. The Asia crisis was the main topic -- its causes, cures and how to prevent another.

There was wide agreement, for example, on the need for a monitoring system -- run by the I.M.F. or some other organization -- that would track the finances of countries much more closely than any international agency now does. A rating system might also be developed, one that might prompt foreign lenders to raise interest rates for countries with poor credit ratings.

''If we have sound surveillance and the right regulations,'' Jacques Santer, president of the European Commission, said, ''then of course the free movement of capital takes place without the same risk.''

Excessive short-term borrowing from abroad has appeared on nearly everyone's list of precipitating factors. South Korean banks and corporations, for example, amassed huge debts in yen and dollars. When the South Korean economy slowed, and the nation's currency, the won, began to lose value, the South Koreans had trouble repaying the billions of dollars coming due each month to Japanese, European and American banks. The banks responded by refusing to renew the loans, doing further damage to the economy. The I.M.F. bailout is partly intended to get South Korea's credit system functioning again and to help assure repayment of foreign debts.

Mr. Fischer's concession is aimed at discouraging so much short-term borrowing. Joseph E. Stiglitz, chief economist at the World Bank, the I.M.F.'s sister organization, also spoke in favor of considering capital controls. As an example, he said the controls might take the form of a big tax deduction for loans longer than a year, and a much smaller deduction or none for short-term loans, to discourage their use.

''If you believe there is a sufficient systemic risk,'' he said, referring to the danger that the Asian turmoil might spread, even to the United States, damaging its economy and markets, ''then you have to believe that there is a need for prior action.''

But most of the people here oppose capital controls, viewing them as unwarranted interference in free markets. A global economy, they argue, functions on free and rapidly flowing capital. The Clinton Administration officials here, spending part of their time promoting the President's request to Congress for $18 billion in I.M.F. funds, shared that caution. The Administration is trying to sell its case on two contentions: the I.M.F. is necessary when a crisis does occur, and a crisis that endures, because of a weakened I.M.F., can cost American jobs.

''The issue of inhibitions on short-term capital is one that requires careful study,'' said Lawrence H. Summers, the Deputy Treasury Secretary. ''There is no question that where supervisory structures are inadequate or financial systems are immature, excessive inflows can create problems. But there are also real risks that controls can delay or prevent more fundamental adjustments.''

Some, like Jeffrey Garten, dean of the Yale School of Management and a former investment banker himself, said that capital controls simply would not work.

''Global lending is so complex today,'' he said, ''that to think you can block off one part and get the results you want is a level of hubris that is unrealistic. Capital finds ways to go flow around the stone.''