World Financial Leaders Seek New Solutions
German bank's refusal to cut interest rates continues to irk other wealthy nations
DISARRAY in world financial markets, which peaked just before global finance leaders convened for their annual meetings in Washington this week, has been a painful reminder that pledged policy cooperation has given way to pulls in many different directions.
Vexed by the lack of coordinated action among the world's strongest - and largely troubled - economies, many participants and observers gathered here for the ongoing International Monetary Fund and World Bank conference are searching for new cooperative approaches.
A Group of Seven communique issued over the weekend runs down a list of measures that its members - the US, Britain, Canada, France, Germany, Italy and Japan - have taken "to strengthen world growth," including the German Bundesbank's symbolic, though marginal, interest-rate reduction and Japan's spending and fiscal-stimulus package.
But despite the public spin on efforts to "reinforce economic recovery," G-7 ministers are keenly aware of their own limitations and the often-negative international impact of their domestically driven policies. The current discord is over Germany's recent interest-rate drop and the Bundesbank's steadfast refusal to bring it down further. The promise of high returns on German rates and the increasing value of the deutsche mark lures precious investment capital away from economies, including America's, th at offer lower yields. Other European economies, mired in recession and budget deficits, are required to keep their own rates within close range of Germany's, though they can ill afford to. Relief expressed
European finance ministers expressed relief after France voted on Sunday, by a narrow margin, to support the European Community's Maastricht Treaty. French officials now deny that the "yes" vote for European unity will provide their government with more leverage in negotiating over agricultural subsidies.
International Monetary Fund (IMF) Director Michel Camdessus says that closer European monetary cooperation will "reinforce prospects for stability and sustainable growth in the world economy."
But European powers are no closer to resolving the differences that resulted in last week's turmoil. Germany strongly denies US and British charges that its preoccupation with its own problems has caused trouble abroad: slower growth, tougher business conditions and dampened consumer demand on the continent.
Former British Prime Minister Margaret Thatcher told an audience of bankers and businessmen that a new global framework must enhance, not hinder private enterprise growth through cooperation in trade and monetary policy. She said the private sector, which received a great boost during the past decade's worldwide emphasis on privatization, is now hurt by high borrowing costs.
World growth in goods and services - flat last year - is expected to reach just over 1 percent in 1992, "less than half the pace of the slowest post-war recovery," says IMF chief economist Michael Mussa. World Bank chief economist Lawrence Summers says the outlook is murky.
As inflation, budget deficits, low business confidence, and high unemployment plague the globe's leading economies, developing-world officials are frustrated that their own economic concerns are a sinking priority.
African, Asian, Latin, and Arab officials from low-income countries lament the mounting deficits in the industrialized economies of the US, Europe, and Japan that cut down on trade and aid that developing countries rely on. They worry that the currency crisis that hit the world's richest countries has shifted the West's already limited attention away from the third world's burdensome debts and dire need for foreign investments.
Pakistani Finance Minister Sartaj Aziz says that instead of pursuing policies that would make more capital available to invest in lucrative markets like Pakistan, India, and China, where "half the world's humanity" offers huge market potential, G-7 countries' policies look inward.
Because the world's monetary affairs are dictated by national policies, he says, exchange rates are volatile and borrowing has become prohibitive. This plays havoc with markets in the developing world, he says. Far-reaching steps
Developing countries have taken far-reaching steps toward economic liberalization, Mr. Aziz says. "They haven't been spurred by crisis, but by choice, for a system that offers faster investment, expanded trade opportunities, and more economic growth. But the international environment, in deep recession, is full of trade restrictions, and net aid is declining." Mr. Aziz says that if there were a "better surveillance system, monitored by the IMF," such impediments to growth could be eliminated, for the mos t part.