Tokyo: A Modest Start

The Tokyo Summit agreement of the seven biggest industrial democracies to consult more among themselves in coordinating their economies and stabilizing their currencies is better than no agreement at all. But it should not be confused with the kind of supranational accords that many experts, including some in the Treasury Department, know would have been more effective. Still if the good intentions are translated into action there will be improved coordination of the seven economies, freer trade, and a “managed float” to help stabilize the major world currencies.

The managed float would contrast with the present free float that has resulted in disruptive volatility in currency exchanges. Under its provisions, the governments would take steps to keep exchange rates within predetermined limits. This would fall short of the fixed exchange rates that ruled world commerce from World War II until the United States unilaterally abandoned the program in 1971. Debate continues behind the scenes as to just how “managed” the float will actually be.

Five of the seven nations already have demonstrated how surprisingly effective improved consultations can be, working since September to push the dollar down to more realistic exchange rates. Their remarkable success has required more than consultation, however. The participants have implemented the program with direct market interventions through central bank sales and purchases of vast blocks of currency to influence the dollar exchange rates. The very success of the program has been a problem for some. Japan, for example, may enter future negotiations with grave reservations because of the summit’s refusal to agree to slow the fall of the dollar against the yen.

The principal power of the new agreement apparently will be peer pressure. In the past, that has not proven very effective. The United States has rejected European criticism of its giant budget deficit just as Japan has rejected appeals from the other major industrialized democracies to reform its economy to reduce the staggering trade surplus. But the new arrangements will carry more weight than the informal appeals of the past.

Treasury Secretary James A. Baker III is the architect of the Group of Seven plan. Beginning with the September agreements to devalue the dollar and the October plan to address the Third World debt crisis, Baker has moved the United States into a position of leadership on the major international economic issues after four years of neglect under his predecessor, Donald Regan, now White House chief of staff. Baker’s vigorous and imaginative new leadership is welcome.

The summit has had to accept a voluntary program of economic cooperation, with no mandatory provisions. That is no more than a beginning. But a beginning it is. There is now agreement that serious problems exist and that they can best be resolved collegially because not even the United States, with its vast power and resources, can maintain economic vitality without the close cooperation of its economic partners. However weak the Group of Seven may prove to be, it has an opportunity to build the confidence needed for more substantial international agreements in the future.