International Finance and Financial Policy

By Hans R. Stoll | Go to book overview

4
Future Challenges To the International Monetary System

RICHARD N. COOPER

My objective to this address challenges to and future prospects of the international monetary system, leaving undefined how far ahead we should look or exactly we should focus on. There are too many items to be covered in brief remarks, so I will concentrate on the next five years and in particular on the prospects of eliminating the large trade imbalances that now characterized the world economy. Concretely, I will focus on the prospect for eliminating the U.S. current account deficit by 1993, an objective that many would consider highly desirable and indeed if anything somewhat too leisurely. The title of my remarks might be "some unpleasant arithmetic concerning the U.S. trade deficit."

I will begin my establishing the base line and making some assumptions, ones that I hope others will consider reasonable. the U.S. current account deficit in 1987, what I assume will be the peak in this century, amounted to $154 billion. It grew to that level over five years, starting with small surplus of $7 billion in 1981. It seems reasonable that we should eliminate it over five years: that would not require a pace of decline greatly different from the pace of increase. Elimination to start with would require a correction of $154 billion, some combination of increased exports of goods of services, and reduced imports. But of course we must allow for the debt that must be accumulated between 1987 and 1993 while the deficit is declining. Servicing that debt--I assumed it will not have to be rapid for some time--would require an additional $40-50 billion, leaving a total required improvement of roughly $200 billion to eliminate the deficit.

Agricultural policies throughout the world have distorted agricultural markets, and have led to large surpluses of temperate zone products. These policies

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