Finance ministers draw a blank on strategy
The financial ministers of the industrial democracies have tough problems to solve, the biggest one being world trade imbalances. When they met here over the weekend to discuss strategy, congeniality and agreement that something must be done were evident. Despite this mood of willingness, the finance ministers and central bankers of the noncommunist industrial world were unable to agree on a global economic plan.
Nigel Lawson, chancellor of the exchequer of the United Kingdom, had said earlier that there was ``no decision for the time being on either interest rates or exchange rates,'' key factors in world trade.
For months, officials from the United States, West Germany, and Japan have been quarreling publicly over economic policy. Now they were playing down their dispute, perhaps concerned that the fuss might disturb foreign-exchange markets today.
The Group of Ten, as usual, was meeting in advance of the joint annual meeting of the International Monetary Fund (IMF) and World Bank due to start here Tuesday. The proclaimed goal of the industrial democracies is greater economic policy coordination.
At the economic summit in Tokyo last May, the leaders of the US, Germany, Japan, France, Italy, the United Kingdom, and Canada agreed ``to work together to sustain and improve the prosperity and well-being'' of all countries. But implementing such ideals has proved extremely difficult.
``It is indeed one of the paradoxes of our time that a marked increase in economic [and political] interdependence has been accompanied by demand for greater economic independence,'' noted Dr. T. m. Rybczynski recently. Dr. Rybczynski is an economic adviser to Lazard Bros., an investment banking firm in London.
In the current squabble, the US has been urging Germany and Japan to cut interest rates or take other measures to step up the pace of their economies. The American goal is both to reduce its own massive trade deficit and to maintain world economic recovery. If nothing is done, says Treasury Secretary James Baker, then the dollar will fall further in value.
The Japanese and Germans feel the US dollar has already fallen sufficiently since it peaked in value in late February 1985. Their export industries are already finding it tougher to compete in world markets.
Both nations refused to trim their interest rates further after the US did in August. The board of the German Bundesbank voted only last week to maintain its 3.5 percent discount rate. And the 12 nations of the European Community moved early last week to buttress the value of the dollar against the German mark on foreign exchange markets.
Japan's government did adapt a variety of measures to stimulate its flagging economy on Sept. 19. It did not, however, lower its interest rates.
Both Germany and Japan do not want to swell budget deficits or add to already generous growth in their nation's money supplies -- the fuel of economic growth. Both nations also dislike being given economic advice by the US, especially since they consider the massive American budget deficit a primary cause of the huge US trade deficit.
The US, Germany, and Japan were unable to resolve these differences when they met with Britain and France as the Group of Five on Friday; nor with the addition of Canada and Italy as the Group of Seven on Saturday; nor with the further addition of Belgium, the Netherlands, Sweden, and Switzerland as the Group of Ten (actually numbering 11) later the same day.
The Group of Ten finance ministers and central bank governors, however, did claim to make some progress in a plan to strengthen ``multilateral surveillance.'' They plan to make a ``more systematic'' use of economic indicators in looking over one anothers' economies and determining whether policy changes are needed.
These indicators reportedly include total national output, exchange rates, and interest rates, as well as the sustainability of balance-of-payments positions mentioned in a Group of Ten communiqu'e. Deputies are to see if some agreement could be reached on percentage changes in these indicators that would kick off policy reviews.
But moving from a policy review to domestic policy changes is a big jump, the experts note.
In the current dispute, even if Germany and Japan went along with the US policy suggestions, the reduction in the American trade deficit could be small. The latest World Economic Outlook prepared by the IMF calculates that a 1 percentage-point increase in the growth rates of Germany and Japan, maintained for three years and allowing for induced effects in other nations, would trim the US trade deficit by no more than $5 billion to $10 billion.
But C. Fred Bergsten, director of the Institute for International Economics in Washington, reckons that the devaluation of the dollar already in place will reduce the trade deficit (and the broader current account deficit) by some $30 bilion to $40 billion in 1987 and a further similar amount in '88. The trade deficit this year is expected to exceed $160 billion.