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January 16, 1999
FRANKFURT, Germany (CNN) -- Finance ministers from leading European and Asian economies agreed Saturday to cooperate more closely to avoid exchange rate turmoil like the chaos that rocked Brazil last week.
However, the 25 ministers, wrapping up two days of talks in Frankfurt, offered few specifics and stopped short of endorsing a Japanese plan to tie Asian currencies to a basket of currencies -- the U.S. dollar, the euro and the Japanese yen -- rather than leaving them pegged only to the dollar.
German Finance Minister Oskar Lafontaine said the recent crisis in Brazil and earlier tumult in Asia and Russia show that "leaving everything wide open gives rise to difficulties.... It's our duty to get to grips with this.
"Everyone agrees we need to take steps to avoid swings in exchange rates," Lafontaine said.
However, the lack of detail apparently reflected deep misgivings in some countries, and among central bankers in particular, about the viability of any formal arrangements to tame currencies.
"In a world characterized by highly integrated and sophisticated international financial markets, there is serious doubt whether target zones for exchange rates are feasible," said Wim Duisenberg, president of the European Central Bank.
After the larger group met, senior officials from the Group of Seven industrial countries discussed Brazil as part of a five-hour meeting to prepare for a February 20 Bonn meeting of G-7 finance ministers.
The talks were described as very constructive, but no details were disclosed.
In Washington, Brazilian Finance Minister Pedro Malan arrived for urgent talks with officials of the International Monetary Fund to discuss new currency exchange rules that will be announced Monday by his country's Central Bank.
Last week Brazil made a surprise move to stop defending its currency, the real, in currency markets, causing it to plunge 15 percent.
The uncertainty in Brazil rattled stock markets worldwide and raised fears that a $41.5 billion IMF rescue package for the country was coming unraveled. But outflows of capital from Brazil slowed, and shares soared 33 percent Friday on the Sao Paulo stock market.
"You saw what happened -- there was no big run," Malan said. "The market set the value (of the real), and it was a stronger level than some people had expected."
The ministers meeting in Frankfurt also heard good news about prospects in Asia, nearly two years after currency devaluations triggered an economic slump across the region.
"In the view of the ministers, some signs of recovery are expected in the current year, and in the medium term, the efforts undertaken by the Asian countries will lay the foundations for regaining steady growth," said a closing statement from the meeting.
But the head of the IMF, Michel Camdessus, expressed concern that Japan, the world's second-largest economy, had not done enough to be sure of pulling quickly out of its deepest recession in half a century.
"Recent policy actions and developments are welcome but may not be sufficient to turn the economy around before next year," Camdessus said in remarks prepared for the meeting. Bad weather and the Brazil crisis prevented him from flying from Washington to deliver the message in person.
Reuters contributed to this report.
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