U.S. Moves to Slow Rise of the Dollar : But Baker Admits Intervention Has Had Little Effect

The United States has intervened in currency markets in the last two weeks in an effort to slow the rise of the dollar against foreign currencies, Secretary of the Treasury James A. Baker III said Friday.

But he acknowledged that the intervention failed to prevent the dollar, whose soaring value has aggravated the U.S. trade deficit, from rising further. “What I can’t do,” he told a group of reporters, “is tell you how much more it would have risen if we hadn’t intervened.”

Baker said the Reagan Administration continues to doubt the effectiveness of such measures, which have been urged on it by U.S. exporters and foreign governments. “You can knock (the dollar) down a notch, you can slow it down a little bit, but it’s difficult to affect in the long run,” he said.

No Basic Change

Baker said the government’s intervention--the sale of dollars on foreign markets--does not mark any basic change in the Administration’s policy of avoiding such action except when necessary to maintain orderly currency trading. He declined to disclose the extent of the government’s intervention, which he said occurred since he became Treasury secretary Feb. 3.

Although the dollar retreated Friday from its recent peaks, it remains about 80% higher in value than it was five years ago against a collection of foreign currencies. But Baker, who switched jobs with White House Chief of Staff Donald T. Regan, made a point of not calling the dollar overvalued.

“It is very strong,” he said, “but to say that it’s too strong puts more emphasis on the detrimental aspects of its strength than on the beneficial aspects.”

Besieged by Complaints

The Administration has been besieged by complaints from U.S. farmers and manufacturers that the high value of the dollar makes their goods too expensive to compete with foreign producers. And foreign governments complain that the rising dollar attracts investments out of their countries and forces them to prop up their own interest rates to keep some funds at home.

But as Baker said, the dollar’s rise has also had some beneficial effects in the United States by lowering the cost of imported goods and making U.S. companies hold down prices to remain competitive. “It has kept inflation down and helped us generate 7.3 million jobs since the recession ended,” he said.

Administration officials have expressed private concern that further increases in the value of the dollar would aggravate the nation’s merchandise trade deficit, which last year reached an unprecedented $123 billion. But so far, they have been reluctant to abandon their commitment to free-floating currency values, making only token interventions in world money markets.

Before Baker took office, the top finance ministers from the United States, Japan, West Germany, France and Britain met in Washington on Jan. 17 and reaffirmed their determination “to undertake coordinated intervention in the markets as necessary.”

Baker, when asked if the United States had moderated its resistance to intervention in currency markets since that meeting, said: “I think that’s true, and I think that occurred as a result of the . . . meeting.”

U.S. currency markets appeared to shrug off Baker’s comments on U.S. intervention. Although the dollar opened somewhat lower in the New York currency market Friday, its value shifted only slightly after Baker’s remarks were disclosed by wire services.

When the U.S. government intervenes to reduce the value of its currency, it authorizes the Federal Reserve to sell dollars in foreign currency markets. The Fed, the government’s central bank and steward of the nation’s money supply, is independent of the Administration and generally maintains an arms-length relationship with the White House.

Might Revive Criticism

On the issue of the Administration’s relationship with the Fed, Baker told reporters that the Administration might revive its public criticism of the Fed’s monetary policies, but only if it could not reach a private accord with the Fed. Fed Chairman Paul A. Volcker frequently complains that federal budget deficits under President Reagan are too high.

“It ought to be a two-way street,” Baker said. “If the Fed has a right to criticize fiscal policy, the Administration, after having made every effort to work privately and cooperatively, should, if it disagrees, have a corresponding right to criticize monetary policy. And that should not automatically be characterized as Fed bashing.”

Reagan Hits Fed Policy

In his recent economic report, released last week, Reagan complained that Fed policy “undoubtedly added to the length and severity of the 1981-1982 recession. And . . . in the second half of 1984 (it) contributed to the temporary slowing of economic growth late in the year.”

Although the Fed’s tough anti-inflationary stance against fast growth of the money supply is widely held responsible for causing high interest rates since Volcker’s appointment to the Fed in 1979, interest rates have steadily declined in recent months. That has eased fears that the economy is heading for another recession.

But despite the drop in interest rates, which should have made U.S. securities less attractive to foreign investors, the dollar began another climb early this month.