Soros sees hard times for US economy

Ulhas Joglekar ulhasj at
Tue Jan 2 20:36:48 MST 2001

2 January 2001

Soros sees hard times for US economy
SANTIAGO: Billionaire U.S. financier George Soros said the United States was
in for a "bouncy and hard" landing as the world's largest economy slows, but
his main concern was for spillover turmoil in emerging markets, according to
a local newspaper report on Sunday.
In an interview with Chile's influential El Mercurio newspaper, Soros also
said he expects the U.S. Federal Reserve to lower key interest rates
aggressively at the start of 2001 but that a new global crisis was
"I believe that it (the landing) will be bouncy and hard. A hard landing
means a slowdown and could eventually turn into a recession or in low growth
for a couple of quarters. We are in a fairly classic slowdown cycle in the
United States," he said.
"But I am much more worried about the consequences on the edge of the system
because this edge has been weakened because of the 1997-1998 crisis, and I
believe will have more serious repercussions in distant regions, such as
southeast Asia," the Hungarian-born fund manager turned philanthropist said.
Asked if he saw a second Asian crisis looming, he said: "No, I do not think
so, not to the same degree or depth as before. The markets are already down,
which means you cannot have a crash after a crash."
In Chile on vacation, Soros said global markets have been predicting --
"better said accelerating" -- a slowdown.
"I think this time the (U.S.) Federal Reserve is more following the market
than leading the market. But I believe it will lower rates very aggressively
at the beginning of next year," he said.
Soros said the problem with the looming crisis this time was inadequate
capital flows from industrial nations to emerging nations.
"The last crisis was the product of a boom of investments in emerging
markets, followed by a very steep fall. Now the problem that the world faces
is inadequate capital flows from countries at the center to countries on the
"It is going to be a chronic, not a temporary crisis, and I believe it is
already underway," Soros predicted.
Asked if a new crisis could be stopped, Soros said: "It cannot be avoided,
but I believe that positive incentives can be created that could promote
investments in emerging countries and those should be put in place by the
international financial institutions."
On Argentina, Soros said South America's second-largest economy was going
through a difficult time "because it is trapped with an overvalued currency,
which cannot be corrected because there is no escape from monetary parity."
Argentina has its peso currency pegged to the dollar -- one peso per dollar.
Concerns about a looming debt default have forced the Argentine government
into accepting economic reforms, such as spending freezes and wages cuts and
privatisations, in return for a $39.7 billion bailout plan backed by the
International Monetary Fund (IMF).
"Any notion of devaluing makes no sense, because it would only create a
financial crisis and would not resolve the problem of overvaluation," Soros
"An even bigger problem for Argentina is the high cost that Argentina has to
pay to fulfil its existing debt obligations. The IMF has come out with a
fairly large package, larger than expected, which really should help
Argentina to survive, but it might not necessarily allow it to grow."
"I think Argentina has to pass through an adjustment process that is going
to be painful. Eventually it will emerge, as long as there is no fall in the
global economy." (Reuters)
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