Policymakers debate economic crises

There are two big topics exercising the international business leaders gathering here for the World Economic Forum. One is whether an international economic "crash" can be avoided. And the other is . . . the weather.

The heaviest snowfall in 27 years was carpeting the Swiss ski resort of Davos last night, home to the annual meeting of the World Economic Forum, thwarting even the best Swiss attempts at efficient time-keeping.

Victims of the snow included US Vice-President, Mr Al Gore, who was forced to take the crawling train up the mountains from Zurich when conditions proved impossible for the helicopter in which he had been due to arrive.

Inside the forum centre is another world. All sorts of people are milling around in the corridors. Mr Brian Eno, the composer of the start music on Windows 95, was spotted yesterday with Microsoft chairman and chief executive, Mr Bill Gates.

The sessions in the days ahead will tell a lot, but the consensus seems to be that the past 18 months of devaluations, debt moratoriums and seesawing money markets have made it obvious to all that the world's financial system is in trouble. A year ago, policymakers, business leaders and others gathering here were preoccupied with Asia and the risks to the world economy. This year these worries remain, if focused on a wider geographic area and particularly Brazil.

However, one of the most eagerly awaited participants, Brazil's Minister for Finance, Mr Pedro Malan, cancelled at the last moment, fuelling speculation that Brazil could be on the verge of setting up a new currency board to support the real, along the lines of Argentina's.

According to Mr Domingo Felipe Cavallo, president of the Fundacion Mediterranea in Argentina, the real could be fixed at around 1.5 to the dollar under such a system. Speaking at one of the preliminary sessions of the forum, Mr Charles Dallara, managing director of the Institute of International Finance, warned that contradictory messages were coming from the world's main economies with the US putting in a surprisingly strong performance, Europe remaining fairly static and Asia still in trouble.

But the big questions are whether Brazil will pull the rest of Latin America into recession which might then spill over into other emerging markets, or will it be able to recapture stability and momentum; and whether the US economy can sustain its very high asset price levels.

For the moment, as Mr Dallara pointed out, the optimists are anxious while the pessimistic are actively fearful.

Speaking here yesterday, Mr Martin Wolf, chief economics commentator of the Financial Times, is decidedly in the latter camp. He insisted that all the main drivers of the current US expansion were unsustainable and that the only question was when the unsustainable stops. Others, however, take a less gloomy view on the outlook for 1999, while the delegates will also discuss the hot topic of global financial regulation and the future of such institutions as the International Monetary Fund.