World Looks to Actions by Clinton For Help in Economic Rebound
WHILE President Clinton struggles to gain domestic support for his economic agenda, his pending package of budget and tax proposals is winning strong endorsements abroad.
The overseas reaction is a combination of "misery loves company" and a plea for help that asks the United States to redress its own troubles in order to ensure that the global recession does not continue. But while there is international agreement on the benefits of fiscal accountability, there is disagreement over whether a US government stimulus package is advised.
America's leading industrialized partners are profoundly affected by many of the same problems impacting the US economy: mounting budget deficits, persistently high unemployment, and trouble stimulating growth in the short-term without jeopardizing long-term potential.
Embarking on difficult economic choices themselves, European, Japanese, and Canadian leaders want the US to make the same politically challenging shift they now face: imposing fiscal discipline, and in some cases, higher taxes. Without Washington's resolve, they say, their own emergence from recession will prove more difficult.
"The process of synergy is important," says French Minister of Finance and Economy Edmond Alphandery. What he holds as essential for a world economic rebound mirrors Clinton's prescription for a more robust US economy: trimming federal deficits, enacting tax policies that favor investment, retargeting public spending to "investments" such as public works, and reducing interest rates. Passage of Clinton's economic plan is imperative, he says.
Leading global finance organizations, such as the International Monetary Fund (IMF) and the World Bank, whose boards reflect the views of their richest and most powerful members, also urge Washington to act quickly. IMF managing director Michel Camdessus favors Clinton's fiscal policy as a way to strengthen savings and investment, but he says the White House should push to slash the deficit by twice as much as Clinton's envisaged $500 billion over five years.
US Treasury Undersecretary for International Affairs Lawrence Summers, who resigned his position as the World Bank's chief economist to join the Clinton administration, says the budget cuts go as far as possible without compromising economic growth.
But the IMF dismissed Clinton's $16.3 billion economic stimulus proposal - which has already been shelved by US legislators - as insufficient "to make a material impact," especially since the US economy has begun to make a comeback. The Clinton team, however, is using the recent weak US economic data to lobby Congress for a scaled-down version of a jobs and public works program.
The Paris-based Organization for Economic Cooperation and Development (OECD), whose 24 members are the world's wealthiest countries, also urges Washington to take tough fiscal action.
"The choices are limited," for the US, where the economic situation is slowly improving, as well as for Japan and Europe, where the conditions are still deteriorating, says Jean Claude Paye, the OECD's director general.
IN terms of fiscal policy, Mr. Paye says, "there is not much room to maneuver in the traditional way [to generate economic activity with added government spending]" because of large budget deficits.
But at a recent Monitor breakfast, US Commerce Secretary Ron Brown underscored the importance of a stimulus package. The more than 50 percent drop in the nation's output of goods and services during 1993's first quarter from 1992's fourth quarter "reinforces the need for the stimulus," Mr. Brown said. "To argue that this economy has turned around is not an argument," he added.
OECD's Paye offers as a solution: "The only way left is to improve the content - the quality of the budget. There is much to do in this [reallocation] ... it's not spectacular, nor is it easy." Such measures "are difficult to sell in every country," he says.
Budget cuts and tax hikes are not popular, concedes US Labor Secretary and key economic adviser Robert Reich.
"The health of the US economy is vitally important," Mr. Reich told the Monitor. "Our strategy to increase public and private investment is a recipe for continued global growth."
But even given the successful implementation of Clinton's proposals, Reich says, "we're probably not going to be the locomotive anytime too soon." A failure to act, however, means the US will be a drag on global prospects, he says. "If we fail to cut our deficit, we're sucking in capital, and indirectly raising capital costs around the world."
Reich says that "other advanced nations have been arguing for years" that the US must redress its "failure to invest in education, training, infrastructure, and technology, and simultaneously control [government] costs."
This is the first time Americans have had the leadership to respond, he says.