Global Policy Forum

By David E. Sanger

Washington - For five years now the Clinton Administration has gone to extraordinary lengths to keep countries from defaulting on loans to investors around the world, fearing that national bankruptcy can set off political upheaval and international economic chaos. That is why the White House bailed out Mexico in 1995, and why Washington moved the financial heavens to rescue Thailand and South Korea (successfully) and Indonesia and Russia (not exactly victories for American-style capitalism).

So it was more than a little curious that when tiny Ecuador, hardly a strategic player in the post-cold-war world, finally drove off a financial cliff this week, there was no one extending a net to cushion the fall. Inside the United States Treasury, the central command post in this era of global economic diplomacy, the message was that Ecuador got its just deserts. For months it has been ignoring warnings that it could no longer delay some enormously tough political choices. Instead, it declared it could not -- and would not -- pay many of the investors who had bought the country's Brady bonds. That was exactly the message the new Treasury Secretary, Lawrence H. Summers, wanted to send to those investors. Since the Asian economic crisis ebbed, Summers has warned over and over again about the dangers of complacency, and said the United States and the International Monetary Fund would not always step in to rescue countries or their lenders. Finally, he proved it. "Sooner or later, investors are going to discover that the world isn't always going to step in to stop a default," one senior Administration official said. "And if they understand it sooner, it might prevent a bigger crisis."

Much has changed since the last time the world's finance ministers and central bankers clogged Washington with their limousines for the annual meetings of the I.M.F. and World Bank. Back then the world seemed on the precipice of economic disaster. Russia had just devalued its currency, Wall Street was swooning, hedge funds were going under and the Federal Reserve was cutting interest rates to breathe life back into the world economy. This year, those finance ministers and central bankers, bellying up to the appetizers at receptions all over the city, are congratulating themselves for the wisdom of their world-saving chess moves last year. The Governor of the Bank of France talked this morning about handing out "coups de chapeau" -- tips of the hat -- to Asia and to the I.M.F. and World Bank. Several of his colleagues from other countries talked about last year in the giddy terms of survivors of a plane crash. All this has Summers worried, and at every opportunity he warns against the dangers of complacency and says the biggest thing the world should fear is "the lack of fear itself." So Ecuador was a chance to create a little fear in the markets.

China Clams Up

As the ministers toasted each other, the Chinese dithered and danced. On Monday, China's negotiator over the country's entry into the World Trade Organization, Shi Guangsheng, arrived in Washington, met with Charlene Barshefsky, the United States trade representative, and offered -- well, absolutely nothing new. Then he flew back to Beijing, in time for the 50th anniversary of the People's Republic. Ms. Barshefsky and her colleagues in the Administration are clearly mystified. For the last few months they have assumed that China's reluctance to negotiate on the terms of its entry to the group -- a deal nearly completed in April, until President Clinton walked away -- was part of some great tactical plan hatched in Beijing.

The theory was that the Chinese, by waiting, were hoping to translate the American guilt over the bombing of their embassy in Belgrade into easier terms for entering the W.T.O. They wanted Clinton to ask China publicly to come back to the table -- exactly what he did two weeks ago in New Zealand, at a meeting with President Jiang Zemin. The meeting here was supposed to make progress. It didn't.

Now some in the Administration wonder if Ms. Barshefsky's decision to publish a list of China's concessions in April was what one senior White House official calls "a huge mistake." Clearly it made Prime Minister Zhu Rongji vulnerable to conservative forces who want to kill any effort to allow foreign competitors equal footing in China. The question is whether those conservatives have the upper hand now, and that China is no longer willing to open up. "Anybody who tells you they understand the Chinese strategy here isn't telling you the truth," one official deeply involved in the negotiations said today. "In fact, we can't figure out whether the Chinese know themselves what they want to do."

Going to Bat for Russia

Neither Congress nor the White House is in any mood these days to give financial aid to the money-laundering Russians, or the corruption-ridden Indonesians, especially after the bloodshed of East Timor. Today the head of the I.M.F., Michel Camdessus, had a pretty clear response: Get over it. Some countries are too big to cut off.

Speaking about Russia at the opening session of the I.M.F. Tuesday, Camdessus said, "it would be the height of irresponsibility to turn our back on this great nation; we will not do that." He urged that all the allegations of misappropriation of funds should be weighed against seven years of "real progress," and added that no one should "ignore the fundamental decision, on which Russia has not wavered, to seek to develop a modern market economy and integrate itself into the international community." He was somewhat less enthused about the progress of change in Indonesia, but clearly was anticipating that the election of a new president would free up the I.M.F.'s coffers once again. And he talked more about rebuilding East Timor than rebuilding Ecuador.

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