G-7 Meeting Could Boost President's Plan
THE United States recovery from recession has gone in fits and starts. But it is still an important leader of world economic growth, according to two separate reports from the International Monetary Fund and the World Bank.
The IMF and World Bank host their annual interim meetings in Washington this week. The finance ministers and central bankers in attendance are seeking to devise policies to prevent the world from sinking into recession.
"This week's meetings take place in a difficult global economic environment," US Treasury Undersecretary for International Affairs Lawrence Summers told reporters on Tuesday.
Mr. Summers, who resigned his post as World Bank chief economist to join the Clinton administration, will be a familiar figure at the three-day conference, which begins this morning.
The most important meeting is between representatives from the Group of Seven richest industrial countries - the US, Britain, Canada, France, Germany, Italy, and Japan - who convene today.
US officials went to the last two G-7 meetings in London and Tokyo buoyed by support for President Clinton's plan for higher taxes and spending restraint.
On the eve of this week's IMF-World Bank meeting, Mr. Clinton lost an important battle over the first stage of his plan: His $16.3 billion economic stimulus package was blocked by a Senate filibuster.
While Office of Management and Budget Director Leon Panetta cautions that the deficit-reduction goals of the White House budget are in jeopardy of failing to pass muster in Congress, other members of Clinton's Cabinet insist that Clinton can maintain the needed momentum to push his economic program through.
Counting on international support for the Clinton plan, Summers stresses that a sound US economic recovery is essential for "the credibility" of US policymakers and the rebound of world economic growth. He says he is confident that the president's budget plan will be enacted this summer.
Clinton's initiatives, which have already raised confidence in stock and capital markets, can have been given credit for the drop in long-term US interest rates that has occurred in late 1992 and 1993.
Among Clinton's most important supporters, Summers says, are other world financial leaders who have viewed Washington's rising government expenditures and increased borrowing as a major contributor to high interest rates and a drag on global growth.
The IMF has endorsed Clinton's budget-cutting plans, but not without qualifications. It urged the US to "reduce the ... deficit by twice as much over the medium term as envisaged in the [president's] economic plan."
Michael Mussa, head of IMF research, says that unless the US government accomplishes more than Clinton's projected goal of reducing the federal deficit by $500 billion over five years, by 1997 US fiscal affairs will be back to where they were in 1988, when the US was on the verge of recession.
The IMF prescribed an overhaul of the costly US health-care system as vital to lowering government costs, as well as a value-added, or national sales tax.
On the US agenda:
* Exchange-rate policy. Summers says the US wants to dispel "some misperceptions about US exchange-rate policy." Despite Japanese consternation over Washington's alleged efforts to drive up the value of the yen (and create a favorable lower rate for the dollar), the Treasury Department official says that G-7 partners should be assured of the Clinton administration's belief that "attempts to artificially influence or manipulate exchange rates are inappropriate" and "excessive volatility is counterproducti ve for growth." He offered US cooperation in coordinating exchange rates.
* Endorsing aid to Russia. US Treasury Secretary Lloyd Bentsen is expected to push other G-7 partners to help assemble the $28.4 billion aid package they pledged at the early April G-7 meeting in Tokyo.
* Economic reform and progress in developing countries. The most important issue for this group, Summers says, is "an investment in girls' education, both in terms of their contribution to economic development and the health and welfare of future generations."