Baker Plays Down Refusal of Tokyo, Bonn to Cut Rates

Treasury Secretary James A. Baker III sought Sunday to play down differences over economic policy with Japan and West Germany, apparently concerned that continued bickering could start an unchecked slide of the dollar.

In a television interview and in remarks before the policy-making committee of the International Monetary Fund, Baker retreated from his previous demand that Japan and West Germany lower their interest rates.

Meanwhile, Mexico and its commercial bank creditors moved closer to the brink in their difficult negotiations over a financing package of $6 billion in new bank loans. The talks, which have been going on for weeks, face a deadline today set by the IMF as a precondition for a $1.6-billion official aid program.

Long-Term Strategy Stressed

Baker now is trying to turn the stern refusals by the Germans and Japanese to drop their rates to his advantage by stressing the importance of longer-term strategies, such as restoring the competitiveness of U.S. industry and breaking down barriers to free world trade.

“I would point out to you that we really are dealing with the medium and longer term as (much as) we are with instant, short-term gratification,” Baker said in an interview on the ABC television program “This Week with David Brinkley.”

Baker had been pressing Bonn and Tokyo to cut domestic interest rates to stimulate their economies and increase their purchases of U.S. goods as a way of reducing a serious U.S. trade deficit. But he said Sunday that other measures, including U.S. tax reform and deficit reduction programs, were as important to correcting the U.S. trade problem.

The United States will end the year with a trade deficit estimated at a record $170 billion, much of it the result of a heavy flow of imports from Japan and West Germany.

“Clearly, these imbalances have got to be reduced, either through greater competitiveness of the dollar, or increased growth outside the United States, or a combination of these factors,” Baker told the IMF Interim Committee. “Although exchange rates must play a role, we would prefer not to have to rely on exchange rate adjustment alone to remedy trade imbalances.”

Comment on Dollar Refused

In the television interview, Baker refused to comment on the value of the dollar and which way he wanted it to move.

“Every time we have anything to say about the dollar, there are very major reactions out there in the financial market,” he said in response to a question. “So I’m not going to get into that debate publicly.”

German Finance Minister Gerhard Stoltenberg said Sunday that currency traders and investors were likely to be disappointed in the lack of concrete steps announced at this weekend’s meetings, which could drive the value of the dollar downward. He said the finance ministers of the major industrial nations had agreed in two days of talks to support the dollar against any precipitous decline, if it became necessary.

“It is very dangerous to have these volatile ups and downs of the dollar/deutschmark relationship,” Stoltenberg told reporters. He added that agreements by the major trading partners at May’s economic summit in Tokyo so far have not been adequate to deal with the sharp fluctuations in exchange rates, and that market intervention might be required.

A U.S. economic policy-maker, who refused to be identified, told the Reuters news agency that no agreement to support the dollar had been reached. But, he added: “We reserve the right to intervene either way, anytime, anywhere, whenever we think it’s in our interest.”

The Mexican bank loans are the last piece of a $12-billion package agreed upon in July to help Mexico cope with its $97-billion debt problem and the declining value of its oil exports. The talks have moved to an undisclosed location in Washington from New York.