THE WORLD FROM... Washington

Uncle Sam's effort to lead the world out of economic doldrums is stymied by failure to crank up own economy

May 14, 1991

WHILE the United States assumed undisputed military command during the Gulf war, events in recent weeks have proved that Washington lacks key support to lead on the global economic front. The Bush administration's war euphoria has quickly given way to preoccupation with the ailing domestic economy. And the administration has failed to enlist international support for lower interest rates, which it says are necessary to spur growth and arrest a worldwide economic downturn.

During the weeks leading up to the spring meeting here of the Group of Seven (G-7) - the finance ministers and central bank governors of the US, Canada, France, Germany, Italy, Japan, and Britain - US Treasury Secretary Nicholas Brady lobbied European and Japanese leaders to lower interest rates.

Michael Boskin, President Bush's top economic adviser, firmly believes that the way out of recession is through growth. He says lower rates make borrowing cheaper and cause economic activity to pick up - from home sales to industrial production.

Hopes that a speedy end to the war would give rise to consumer confidence and economic growth in the US now are lost because of discouraging reports on the gross national product. The GNP has fallen appreciably during the past six months. Bush administration officials warn that because the US produces one-fourth of the globe's goods and services, a troubled economy at home spells more trouble abroad.

Mr. Brady's requests for lower rates overseas were rebuffed. Leading economists both here and abroad say that coordinated interest-rate cuts, much less any overall coordination, is remote. The world's seven richest industrialized countries are putting their competing domestic concerns above global ones.

While Britain, France, and Italy are all concerned about recession domestically, Germany and Japan fear escalating inflation. They have both doggedly refused to allow external concerns to influence their own economic policies. Germany has the dominant economy in Europe. Its rejection of the US request is critical. At best, Washington's pleas and the Federal Reserve Board's subsequent decision to lower its own rates in the absence of German and Japanese cooperation, may have prevented Bonn and Tokyo from actually pushing their rates higher.

Economic growth has also contracted in the developing countries - including Eastern Europe, Latin America, and the Middle East, according to the International Monetary Fund in Washington. The World Bank and the IMF recently served as co-hosts of a Washington meeting of the world's financial and economic leaders. Interest rates and the threat of global recession dominated the discussions. The IMF says world economic growth will be just 1.2 percent this year but will recover by 1992. What accounts for the IMF's optimism? An expected turnaround in the US economy, which will compensate for the slack-off in the German and Japanese economies, whose engines are steadily losing steam. Developing countries, debt-distressed and undergoing painful economic reforms, have more at stake in a world slowdown than the powerful G-7 that dominate decisionmaking, says Pakistani Minister of Finance and Economic Affairs Sartaj Aziz. Recession reduces foreign investment and loans developing countries desperately need from wealthier countries; and it eats away at export markets valuable to economies that bank on exports earnings to fuel growth. In Washington recently, Cameroon President Paul Biya voiced concern that a casualty of a global recession will be economic assistance from the world's rich. ``These countries should get out of recession,'' he says. ``We need help.''