Trade Partners Rebuff U.S. on Lowering Interest Rates

WASHINGTON — Top economic officials of the major industrial nations adjourned a two-day meeting Saturday with rhetorical promises of cooperation but no agreement to act on differences over interest rates, exchange rates and trade imbalances.

Finance leaders from the United States, Japan, West Germany, Britain, France, Canada and Italy met for more than 12 hours over two days behind closed doors at the Treasury Department. The so-called Group of Seven issued a generally worded communique Saturday endorsing current policies but acknowledging that the U.S. trade deficit “cannot be sustained.”

The joint statement was viewed as a setback for U.S. officials, who hoped to persuade West Germany and Japan to cut domestic interest rates to stimulate growth and provide larger markets for U.S. exports.

The group said there would be no immediate efforts to alter exchange rates or interest rates. Currency and stock markets in the United States, Europe and Japan have been waiting for some signal from policy-makers as to what direction they want rates to go.

“On exchange rates, we decided not to take any action for the time being,” Nigel Lawson, Britain’s chief economic official, said after the meeting. “We will review the situation closely and stand ready to take action should it be necessary.”

Sources close to the discussions who asked not to be identified said Germany and Japan defended their economic performance and resisted U.S. pressure, which they said was at times heavy-handed, to cut their interest rates.

The Japanese argued that the falling value of the dollar would soon be felt in declining exports of Japanese goods to the United States. Finance Minister Kiichi Miyazawa also told the group that the swollen U.S. budget deficit was more harmful to the global economy than was the high level of Japanese exports, sources said.

Both Japanese concerns were reflected in the one-and-a-half page communique. The statement said the effects of the falling dollar “will increasingly come through in the period ahead” as sales of U.S. goods abroad increase in response to their lower relative price.

Ask for Lower Deficit

The statement also said that “countries with major deficits,” meaning the United States, must reduce those deficits so as not to consume world financial resources that could be better used to finance economic growth.

For their part, the healthy exporting nations--Germany and Japan--were called upon to sustain or increase their pace of economic growth.

“These actions should help stabilize exchange rates, and all are necessary so that imbalances can be reduced sufficiently without further significant exchange rate adjustment,” the statement said.

U.S. Treasury Secretary James A. Baker III, before the meeting, had warned that unless the Japanese and Germans were willing to do more to boost growth in their countries, the United States would be forced to push the value of the dollar lower still, an action opposed by U.S. trade partners.

U.S. Action Discouraged

The participants, acknowledging the need to stabilize currency rates, concluded that unilateral action by the United States on exchange rates would be more harmful than a period of inaction.

The seven-nation sessions, a prelude to this week’s annual meeting of the International Monetary Fund and World Bank, marked the first test of a coordination strategy devised at the economic summit this past May in Tokyo.

The group endorsed that approach, which called for “surveillance” of each nation’s economic policies. The plan empowers economic officials to recommend “remedial measures” whenever a nation fails to live up to its major economic forecasts on such measures as trade balances, inflation and domestic growth.

The seven nations said their main objectives over the next several months would be to sustain growth, avoid inflation and resist protectionism. They said expansion of the industrialized nations’ economies was the best hope for helping heavily indebted nations out of a severe recession.

Lack of Agreement

The joint statement issued Saturday was in line with the predictions made by many observers who contended that the seven countries were divided on major points and were unlikely to come up with a significant agreement like the one forged on Sept. 22, 1985.

That agreement, announced in New York, committed the United States, Japan, West Germany, Britain and France, to work in a coordinated effort to drive the value of the dollar lower.

Since that agreement, the dollar has fallen by about 30% over the past 18 months.