Lawmakers will not approve funding for a world rescue of troubled Asian economies unless banks take a "meaningful" financial hit, Rep. John J. LaFalce said Tuesday.
"Existing creditors should be expected to bear an appropriate financial burden," the House Banking Committee's No. 2 Democrat said at an Institute for International Economics luncheon.
"Public perception that (International Monetary Fund) assistance will privatize creditors' profits and socialize their losses will erode public and congressional support faster than anything else," he said.
However, Rep. LaFalce urged Congress to let the marketplace and Asian authorities decide whether banks should write off losses, ease terms on loans, or adopt other methods to inflict sacrifices.
"I don't think we should legislate it," he said.
But Rep. LaFalce forcefully advocated congressional approval of the White House's request for $18 billion in new IMF backing. "It is my strong- held belief the risks of inaction far, far transcend the risks of action," he said.
Rising unemployment, larger trade deficits, and falling stock prices in the United States as well as the spread of economic upheaval to other developing countries could result if Congress rejects funding, Rep. LaFalce warned.
The New York Democrat also said the IMF and U.S. government should demand that Asian countries reform their financial systems by adopting international standards on capital, supervision, and disclosure.
