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THE WORLD FROM...Washington

The West's fiscal crisis has drawn financial leaders' attention from problems of Russia, third world

By Amy Kaslow / September 23, 1992



THE annual meetings of the World Bank and the International Monetary Fund - the globe's largest development organizations - are intended to provide a forum for the richest countries to address the problems of the poorest.

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But finance leaders gathered here this week are preoccupied with industrialized countries' problems. When they do manage to focus on the developing world, they are in the ironic position of trying to check the negative effects of their own budget deficits, slow growth, and high unemployment.

Even the pressing problems of the former Soviet Union that dominated agendas for the past two years have been sidelined.

From Latin America to Eastern Europe, governments embarked on economic reforms are anxious to make the same gains as development-model market economies. Instead, the third-world reformers must confront fading trade opportunities, declining investments, and a slowdown in credits and aid.

The United States, Japan and many European countries assert that high interest rates pose the greatest danger to world growth.

The Europeans came to Washington pointing fingers. They laid most of the blame for their economic woes and last week's currency crisis on Germany, whose high interest rates, kept up to combat inflation during the costly unification process with eastern Germany, have forced other European partners to push their rates to uncomfortable levels.

German Bundesbank officials have refused to lower rates beyond the minimal reduction approved last week. Such inflexibility jeopardizes markets and hardens opposition to the Maastricht Treaty, designed to unite the 12-nation European Community in common policies and a single currency.

MANY of Maastricht's detractors in France and elsewhere are concerned that the treaty will make Germany's the dominant monetary policy. Central bankers from London to Washington are anxious when traders dump less-valued currencies for the powerful German mark, backed by much more favorable interest rates.

French finance minister Michel Sapin says the unprecedented turmoil in world currency markets "leaves scars - and those scars have to heal."

In response, the IMF has called for the US to bump its interest rates higher and for Germany to push its rates down.

For his part, President Bush invited finance ministers and central bank governors to the White House this week, where he urged leaders to consider use of a commodity basket, including gold, to help set the value of major currencies. Growth rates, trade deficits, and foreign debt and exchange rates would also be factored into the equation.

The high-profile White House meeting and the proposal were broadly viewed as part of an election-year effort to highlight Bush's leadership in global finance.

While finance leaders tried to put the best face on France's Maastricht vote and to calm currency markets, economists don't expect US, European, or Japanese leaders to coordinate their policies. National economic priorities are too divergent, they say.

To Henning Christophersen, the European Community's vice president, "it's clear that the G-7 (Group of Seven leading industrialized countries - the US, Britain, Canada, France, Germany, Italy and Japan) must play an important role." He and many other officials here this week have called for a "multilateral surveillance process in the G-7" and for cooperation that has been elusive at a time when it is most needed.