Volcker Asks Faster Japanese, German Economic Growth/to Stabilize Exchange Rtes

THE JOURNAL RECORD, February 20, 1987 | Go to article overview

Volcker Asks Faster Japanese, German Economic Growth/to Stabilize Exchange Rtes


WASHINGTON (AP) - Federal Reserve Chairman Paul Volcker on Thursday said a weekend meeting in Paris of industrial nations should help efforts to stabilize exchange rates, but that real progress requires West Germany and Japan to do more to stimulate their economies.

Volcker told the Senate Banking Committee continued slow growth in those and other industrial nations increases the risk of recession in the United States.

He also suggested that Japan should import more goods from Korea and Latin America in an effort to trim its huge trade surplus, a move he said would indirectly help ease this nation's $170 billion trade deficit.

Volcker testified amid reports of a tentative agreement among industrial nations aimed at stabilizing the value of the dollar against other major currencies in exchange for promises from Japan and West Germany to do more to spur growth.

The dollar has plunged more than 40 percent in the past two years against other major currencies. And, while this decline promises to help ease the U.S. trade deficit by making imports more expensive, it has created economic hardships elsewhere, particularly in Japan.

The proposed accord is expected to be announced on Saturday at a meeting in Paris among finance ministers and central bank officials of the United States, Japan, West Germany, Britain and France, with a second session tentatively scheduled for Sunday that will also include Canada and Italy.

Speaking with reporters after his testimony, Volcker said, ``I don't think this meeting in itself should be given undue importance. It's part of a process in a coordinated, cooperative way.''

Treasury Secretary James A. Baker III, in a separate appearance before the Senate Finance Committee, said he wanted to ``knock down suggestions that have appeared that this is an emergency meeting'' of finance ministers. ``It isn't,'' Baker said.

However, Allen Sinai, chief economist for Shearson Lehman Bros., said he doubted that the meetings ``would be called unless there is a high expectation of some agreement.''

Volcker said that establishing ``reference zones'' for valuation of the dollar and other currencies to dampen wild fluctuations - reportedly part of the new agreement - would not work in the absence of stronger growth in Germany and Japan and continued efforts in the United States to reduce the budget deficit.

``It's one approach but it in no way substitutes for the more basic economic policy coordination or consistency. Without that, a reference zone isn't going to work and a lot of other things aren't going to work,'' Volcker told reporters. …

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