THE world's finance ministers and central bank governors often
slip into Washington little noticed when they arrive for the spring
meeting of the International Monetary Fund and the World Bank.
But this year, with the mighty dollar in steep decline against
the Japanese yen and German mark and global financial markets
skittish, they could make a considerable splash.
The springboard for their discussion this week is the Mexican
peso crisis, which rocked the foreign exchange markets, left many
sophisticated investors scratching their heads, and cast a shadow
over the North American Free Trade Agreement (NAFTA).
The fallout raises the question: When and how should the Group
of Seven (G-7) top industrialized nations work to avert, manage, or
remedy such problems?
There's nothing like a souring experience to spur
soul-searching, and that's what the G-7 representatives from the
United States, Britain, Canada, France, Germany, Italy, and Japan
will do as they meet today.
The focus, of course, is on the Clinton administration, which
championed NAFTA, mobilized the international community to put
together a $20 billion stabilization package for the Mexican
economy, and presided over the dollar's turmoil.
The Mexican crisis sparked foreign concern about the Clinton
team's "laissez-faire" approach toward managing the dollar. To
many, US reluctance to actively shore up the US currency has
undermined confidence in America's economic leadership.
The dollar is down 13 percent against the Deutsche mark and 17.5
percent against the yen since 1994, but only down a small
percentage on a trade-weighted basis that looks at currencies of
all important trading partners, including those of developing
Japanese officials worry that their export volumes will shrink
dramatically. German Finance Minister Theo Waigel recently sounded
his frustration over Washington's failure to back up its declared
support for a strong dollar with action. Some officials charge the
Treasury Department with giving way to the Commerce Department, a
development they say has meant the promotion of exports over
stability of the dollar.
Impatient with the American position, IMF managing director
Michel Camdessus is pushing the US Federal Reserve to raise
interest rates as a way to stabilize the currency markets.
But to many Fed watchers, that prospect is remote, especially
given last week's news that the US economy is slowing more sharply
than many forecasters had anticipated. Economists say the
possibility of a recession by 1996 is dampening any enthusiasm the
central bank may have for a rate hike.
Side-stepping calls for intervention in the currency markets,
Lawrence Summers, Treasury undersecretary for international
affairs, says there is no better "route to more effective
cooperation on macro-economic policies, or to greater stability in
financial markets, except through the fundamentals . …