The Asian Swat Team From Washington

How a U.S. Treasury trio helped to contain the Asian crisis

Few Americans know that David A. Lipton is a key player in the Asian economic crisis, but at least his dry cleaner does. Lipton, Under Secretary for International Affairs at the U.S. Treasury, flew to Seoul before Christmas on a delicate mission: gauge President-elect Kim Dae Jung's commitment to the harsh reforms demanded by the U.S. and the International Monetary Fund before Korea got billions in new aid. In Korea, Lipton's visit was front-page news and a hot topic on the television programs. In the U.S., few noticed. But on his return, Lipton dropped off laundry at the neighborhood Korean cleaners. The clerk said, "I saw you on TV. You're famous!" Turns out she watches the Korean news on an international cable channel.

That may be all the fame the 44-year-old Lipton will ever get, but it doesn't reduce his role as a top U.S. negotiator with the Thais, Koreans, Japanese, and others. He's part of an interesting team at Treasury, led by the far-better-known Deputy Secretary Lawrence H. Summers, 43, that has essentially shaped the U.S. effort to reach a solution to the biggest financial crisis of the decade. The third member of this trio, Assistant Secretary for International Affairs Timothy F. Geithner, is a 36-year-old Asia hand adept at negotiating with the finance ministries of the region. If U.S. policy is ultimately successful in helping stem the crisis, the credit should go to these three. And of course, if the crisis spins out of control, they may well shoulder the blame.

Even though the U.S. is technically just following the IMF's lead, everyone looks to the U.S. to anchor any scheme to shore up Asia. That means Summers, Lipton, and Geithner have to use pressure, cajolery, and subtle prodding to move everyone to consensus. In January, for example, the trio launched a two-week phone blitz to keep bankers and Korean negotiators on track as they worked to stretch out $24 billion in bank loans owed by Korea. "They played an important role at a critical point," says Chung In Yong, a Korean government envoy and former Korean Finance Minister. "When they engaged themselves, they did it with speed."

The travel involved in this job is brutal. Geithner's wife has jokingly asked Treasury officials to post his picture on the department's Web site, saying that she's barely seen him in six months. In a seven-country blitz in January, Summers and his deputies implored Indonesian officials to stick with reforms, goaded the Koreans to speed up their restructuring, and encouraged Chinese officials to resist a currency devaluation.

Summers & Co. possess unique skills for this kind of shuttle diplomacy. Unlike many Republican Treasury appointees who hailed from Wall Street, this group consists of two economists and an Asia specialist with experience in troubleshooting. Treasury Secretary Robert E. Rubin, who has encouraged Summers to take the lead on the rescue, praises his aides for being "schooled in the international language of how to handle these issues."

As leader of the trio, Summers, a former Harvard University professor and World Bank chief economist, can be eloquently persuasive with foreign leaders, but he also has a brusque style that has prompted several senior Treasury careerists to take early retirement. Colleagues say that Lipton and Geithner possess the intellect and moxie to joust with Summers. Geithner once fooled Summers into believing that the White House was assigning him Secret Service protection because of his role in the proposed overhaul of the Internal Revenue Service.

The son of a Ford Foundation executive, Geithner grew up in Rhodesia, Zambia, India, Thailand, and China before joining Treasury's Tokyo office in 1990. There, he won credit for helping to persuade Japan to pony up a $13 billion donation for the gulf war, and then to open its markets to U.S. financial-services firms. Geithner's political acumen came in handy when last fall Japan proposed an Asia Fund, bankrolled by the region's rich countries, to bail out troubled economies there. Geithner figured out that the leaders of the region's smaller countries actually dreaded the idea of Japan controlling such a potentially powerful institution. He used those concerns to help beat back the proposal--and avoid any charge that the imperial Americans were blocking an Asian solution.

Lipton, a Boston native and Harvard classmate of Summers, spent eight years as a staff economist at the IMF and then two years as a private consultant advising Russian and Polish officials on how to make the switch from socialism to capitalism. "He's the best `country doctor' I know," says his predecessor, Jeffrey R. Shafer, now vice-chairman of Salomon Smith Barney International Inc. "He's a pragmatist who has no interest in debating theoretical points." Adds Summers: "David understands the intricacies of the IMF programs so well he can help the IMF build their spreadsheets from the bottom up."

Lipton relaxes by watching action flicks: "If someone doesn't die by the opening credits, I'm bored," he's told friends. That's curious, considering the number of real-life dramas he's been in himself. While Lipton won't discuss his role in the initial talks between Korea and the IMF, Seoul officials claim he was an integral player. The Koreans say the IMF's chief negotiator kept adding more conditions after phoning or meeting with Lipton back at his hotel room. Korean papers painted Lipton in even darker tones, portraying him as a heartless manipulator of the talks.

VOCAL CRITIC. Summers and his colleagues have plenty of detractors, from congressional isolationists to foreign leaders who resent the heavy hand of the U.S. The Treasury team is "primarily representing U.S. interests," complains Park Yung Chul, president of the Korea Institute of Finance, a government-affiliated think tank. "They could have contained the problem in Thailand before it developed into a full Asian crisis. But they didn't." Ironically, one of the most vocal detractors is Lipton's former consulting partner, Harvard international economist Jeffrey Sachs, who thinks Treasury and the IMF are pushing austerity measures on Asia that the situation does not warrant.

Summers and his colleagues point out no one has come up with any better ideas for the Asian financial crisis. "We're at the frontier of so many issues," notes Geithner. "There's no road map." Right now, the three are working to establish an emergency trade insurance fund to give badly needed credits to Asian manufacturers. That proposal could involve up to $10 billion, and will take plenty of behind-the-scenes work. Lipton, Geithner, and their boss know something about that.

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