Editorials
Thursday, September 24, 1998

Economy needs
boost from
interest rates

WHEN it comes to the economy, no public figure commands as much attention as Alan Greenspan, the chairman of the Federal Reserve. So when Greenspan, testifying before the Senate Budget Committee yesterday, hinted that the Fed might lower interest rates, stocks surged. The Dow Jones industrials average jumped 257.21, or 3.3 percent, to 8154.41, its first close above 8100 since Aug. 27. The Standard & Poor's 500 Index gained 36.46, or 3.5 percent, to 1066.09.

Greenspan told the committee that although there is little evidence of any "significant underlying weakness in the American economy as a whole," manufacturing production is eroding and the restraining effects of recessions overseas "are likely to intensify." Deteriorating economies abroad "have increased the possibility that the slowdown in the growth of the U.S. economy will be more than sufficient to hold inflation in check," the central bank chief said.

Analysts saw those remarks as a hint that Greenspan would push for a reduction in the overnight bank lending rate from its current 5.50 percent at next Tuesday's meeting of the Federal Open Market Committee. It would be the first policy change in 18 months and the first interest-rate cut in 32 months.

That could encourage investment and consumption and help keep the eight-year-old U.S. expansion alive despite the economic problems of East Asia. It would be particularly welcome in view of the difficulties Japanese Prime Minister Keizo Obuchi is facing in gaining approval of a package of banking reforms viewed as essential to lift Japan out of recession. Obuchi conferred Tuesday with President Clinton, who urged him to act quickly but received no assurance that he would be able to.

Clearly the danger facing the U.S. economy today is not inflation, long the concern of the Fed, but an end to the expansion because of the severe recessions in much of East Asia, which now threaten to spread to Latin America. It's time for the Fed to shift gears and adopt a stimulative policy.

Hawaii, which has been floundering because of Japan's problems, could be hurt even more if the mainland recovery fizzles out. A lowering of interest rates could help Merchant Street as well as Wall Street.

Iran’s new moderation

THE moderate approach of Iranian President Mohammad Khatami could lead to reconciliation with the United States, but only if supported by hard evidence of change. Until that can be shown, U.S. relations with the Islamic fundamentalist regime will remain frozen.

Since his election in May 1997, Khatami has made repeated friendly overtures to the U.S., first suggesting an exchange of academics, authors, journalists and tourists. But his call was quickly rejected by Ayatollah Ali Khamenei, Iran's supreme religious leader.

Although the ayatollah is a more powerful figure, Khatami's moderation is beginning to show results. Iran's hard-line parliament, apparently fearful of angrying the millions of Iranians who elected Khatami, this week approved his moderate nominee to oversee police and domestic security, a key position.

At the same time, Khatami backed away from the late Ayatollah Ruhollah Khomeini's edict that British author Salman Rushdie be executed for blasphemy against Islam in his book, "The Satanic Verses." A religious foundation has had a $2.5 million bounty on Rushdie since the edict was issued.

Khatami now says he considers the affair to be "completely finished," indicating that his regime has no intention of enforcing the decree.

In a speech Monday before the United Nations, the first by an Iranian president since 1987, Khatami had no criticism for the United States, which was described by his predecessor as a "Great Satan." His criticism of Israel was muted, and he made no threat to invade Afghanistan, despite the presence of 200,000 troops on the Afghan border and Iran's condemnation of the rule of Afghanistan's militant Taliban movement.

Khatami's moderation should encourage dialogue between Tehran and Washington, which has cautiously expressed interest. But Iran must renounce its support of terrorism before progress can be made.

Malaysia crackdown

THE East Asian economic crisis is having political repercussions. It helped opposition leader Kim Dae-jung win South Korea's presidential election last December. It sparked rioting that forced the resignation of Indonesia's President Suharto last May. Now, in neighboring Malaysia, it has led to the firing and arrest of Deputy Prime Minister Anwar Ibrahim.

Prime Minister Mahathir Mohamad turned against his one-time protege in a clash over fiscal and monetary policy in the wake of the collapse of the Malaysian stock market last fall. Mahathir's response was to blame Western currency traders and impose financial controls. Anwar had advocated tight fiscal policies and a more liberal political system.

Hours after leading a mass rally calling on Mahathir to resign, Anwar was arrested Sunday, accused of sexual indecency, sedition, bribery and abuse of power. The accusations appeared to be nothing more than a crude attempt to discredit him.

Last week, after his ouster as deputy premier, Anwar drew large crowds to rallies demanding reform, similar to the demonstrations in Indonesia last spring that toppled Suharto.

Thus far Mahathir's grip on the reins of power seems strong. But Anwar's arrest could provide the regime's opponents with a symbol of its repression. If Mahathir survives -- and thus far there is no indication that he won't -- it will be at the price of Malaysia's reputation as a democratic nation.

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Published by Liberty Newspapers Limited Partnership

Rupert E. Phillips, CEO

John M. Flanagan, Editor & Publisher

David Shapiro, Managing Editor

Diane Yukihiro Chang, Senior Editor & Editorial Page Editor

Frank Bridgewater & Michael Rovner, Assistant Managing Editors

A.A. Smyser, Contributing Editor