From Abroad, U.S. Scored on Deficits : West Germany Also Takes Heat for Stock Crash

The short-term effects of the stock market crash on other countries varies from profound to puny, but a sampling of world opinion reveals a like-mindedness about the causes of the crash. Most place blame first on the U.S. budget and trade deficits and an overvalued stock market and, second, on West Germany’s decision to increase interest rates. A country-by-country survey follows.

Great Britain

LONDON--There is widespread agreement in London that blame for the worldwide plunge in stocks lies squarely on the United States, with West Germany getting additional blame for failing to do anything to help bail out the Americans.

But blaming the United States makes for special problems in Britain because it has a conservative government with policies identified with those of President Reagan.

The government of Prime Minister Margaret Thatcher has been embarrassed by a stock market fall that was worse than any other in Europe, even worse than that in New York. On top of this, it came as the government was about to sell off to private investors shares valued at 7.2 billion pounds in the nationalized British Petroleum company.

In a speech last Monday, Chancellor of the Exchequer Nigel Lawson said the U.S. budget and trade deficits, plus the growing American indebtedness to foreigners, had triggered the worldwide crash. But he also criticized West Germany’s Bundesbank--the central bank--for its failure to ease the world situation by cutting interest rates.

Lawson said governments now know that, unlike what they did in 1929, they must not precipitate a depression by turning to protectionism or “undue monetary tightening.”

“I believe that lesson has been widely learned,” Lawson said, “but it would certainly be helpful if the German monetary authorities were to show more obvious awareness of this.”

Lawson said the decline in the markets was neither unexpected nor unprecedented. “I believe that we can turn what has happened to positive advantage,” he said.

France

PARIS--As in Britain, there is near unanimous agreement in Paris that the United States is to blame for the sharp, worldwide decline in stocks and that West Germany must share some of the blame.

And France, like Britain, has a problem in assessing blame because it has a conservative government with policies that have been likened to President Reagan’s.

Prime Minister Jacques Chirac, a conservative, described himself as “reasonably optimistic” in a radio interview last Tuesday, but his remarks were ridiculed by critics. The leftist daily Liberation said many economists could not help but think of Herbert Hoover saying after the crash of 1929 that prosperity was just around the corner.

The strong fall in stock prices may have delivered a final, crippling blow to Chirac’s hopes to win the presidency in 1988.

Most polls show that Chirac has been an unpopular prime minister, but privatization--his program to sell government corporations to private investors--has been popular. The program drew many small French investors into the market for the first time. Now they are finding their paper profits heavily reduced and, in most cases, turned into a loss.

Chirac said his privatization program would continue. “It is a tranquil revolution and will continue tranquilly,” he said. Some analysts interpreted this to mean that the program would be slowed. In fact, plans to sell the stock of the government defense contractor Matra to the public were delayed indefinitely. And Finance Minister Edouard Balladur announced that the government would hold up trading in the new shares of Suez, a financing company privatized on Oct. 5.

President Francois Mitterrand, a Socialist who is favored to win reelection if he runs, criticized the entire free market approach of the conservative government. Mitterrand said the crash was “tolling the bell for a nullity of a system and it is necessary to organize a new one capable of assuring an environment for entrepreneurs that is stable enough for them to forecast, create and work.”

West Germany

BONN--In Germany, three factors are blamed for the crash on stock markets around the world: the U.S. budget deficit, the U.S. trade imbalance and a Bundesbank decision to raise interest rates shortly before “Black Monday.”

Franz Josef Strauss, the premier of Bavaria and leader of the Christian Social Union, said “Reagonomics have failed, but (President) Reagan lacks the insight and power to change his policy and/or tell his Americans to tighten their belts.”

Strauss said: “There are indeed instruments to stop this crisis, if the responsible officials know how to handle them. A misfortune is the terrible weakness in the leadership of Ronald Reagan.”

Finance Minister Gerhard Stoltenberg said that what is needed is “quick agreement in the United States on reducing the budget deficit.”

The business-oriented Frankfurter Rundschau said in an editorial that Secretary of the Treasury James A. Baker III “is not the only one who is guilty in this case (for calling into question government support for the dollar). The German Bundesbank failed by raising the interest rate as well.”

The daily General-Anzeiger of Bonn said: “The cause of the crisis was the imbalance between countries that live beyond their means (the United States) and those that live under them (West Germany).”

Italy

ROME--At the neo-classic Palazzo Mezzanotte in Milan, the Italian stock exchange, prices that had been easing for most of the year on Friday snapped off their 1987 lows as a sense of proportion returned to the Italian market.

Buyers grabbed undervalued blue chips like Fiat and Olivetti, reassured by economic indicators and official rhetoric that the Italian economy was sound. Overall losses since the crash were 13% when the market closed Friday.

As the weekend began, it was American tourists who seemed to be more discomfited than Italian investors. A soaring lira, which touched a five-year high during the week, had driven already expensive consumer goods almost out of sight for buyers with sick dollars. A large Coke at the McDonald’s in the Piazza di Spagna cost $1.54 Friday.

Frenzy from Tokyo and New York kept Italian investors off balance, but amid the madness was the unquenchable conviction that the heart of the problem lay not at home but in the United States.

Carlo Azeglio Ciampi, president of the Bank of Italy, said that “although the market crash sounded alarm bells for the international economy, a look at the real economy is more reassuring.”

Despite risks of revived inflation, the Italian economy is fundamentally sound, he said, in remarks echoed by Prime Minister Giovanni Goria, a former treasury minister.

But Americans should worry, Italian analysts concluded.

Renato Ruggiero, the Italian minister of foreign trade, said: “What has happened to the stock market and monetary markets shows that the coexistence of a high U.S. deficit together with low interest rates and a stable dollar is impossible. Words alone won’t cure the malady--and the cure will be by no means painless.’

Japan

TOKYO--Japanese leaders unleashed a rare public attack on the United States in connection with the crash on world stock markets, blaming the U.S. budget deficit and worries about the future of the U.S. economy.

Finance Minister Kiichi Miyazawa said the fastest way to stabilize stock prices would be for President Reagan and the Congress to agree on how to reduce the U.S. budget deficit.

Kenichi Kamiya, president of the Mitsui Bank and head of the Japanese Federation of Bankers, accused the United States of “indulging in luxury beyond its means” and said Americans need to accept a lowering of their standard of living.

Koji Baba, a professor of economics at Tokyo University, blamed the crash on “immoderate consumption exceeding productivity” in the United States.

“Excessive consumption has been sustained by the affluence of the dollar and by the inflow of capital from Japan. In other words, the contradiction between production and consumption has been camouflaged by a worldwide inflation-like economy that inflates credit by swelling currency. After the sharp fall of the dollar, the crash occurred.”

Keikichi Honda, director of the research department of the Bank of Tokyo, blamed the plunge in part on Treasury Secretary James A. Baker III, who had criticized West Germany for not bringing down interest rates.

“The continuous fall of New York stock prices happened because what Treasury Secretary Baker said created anxiety that the international coordination policy (to stabilize exchange rates) might be changed in addition to people’s expectations of higher interest rates in the future. At the same time, however, it is also true that the American stock market has been excessively high, and it could have fallen at any time.”

China

BEIJING--The official newspaper of the Chinese Communist Party, the People’s Daily, on Oct. 22 published an article analyzing the crash that could easily have appeared in a Western journal.

The article, which viewed the worldwide fall as rooted in the problems of the American economy, cited the U.S. budget deficit and trade deficit and said “the devalued American dollar remains unstable.”

“In order to stabilize the dollar, the Federal Reserve Board had to raise interest rates to attract floating foreign currencies into the country, but high interest rates are disadvantageous to both the stock markets and investment in enterprises,” it said.

“In addition, the economic policies of West Germany and Japan are deliberately opposed to those of the United States. All these factors contributed to people losing their confidence in the ability of the Reagan Administration to control the economy. It is this lack of confidence and optimism that led people to sell their stocks.”

Another factor, the article said, was that “dealing on major stock markets in both the United States and other countries has been up since August of 1982 and grown at an unprecedented rate over the past 63 months.”

But China’s reformers, who are seeking to enliven their nation’s economy through use of market forces, show no signs of being scared away from studying how to expand fledgling stock exchanges.

“We will study the causes of the crisis,” Gao Shangquan, vice minister of the State Commission for Restructuring the Economy, said at a news conference last week. “But it won’t affect our reform, which introduces negotiable securities and shares. These . . . can be used by both capitalist and socialist countries.”

South Korea

SEOUL, South Korea--The crash on the New York Stock Exchange was front-page news in most Seoul newspapers, but there has been little editorial or high-level political comment.

There was almost no direct linkage to the small South Korean stock exchange, where the index fell less than 3% in response to the news from New York.

The Korean exchange is insulated against outside developments. For example, exchange regulations stop trading in a stock if it exceeds a narrow range of gain or loss during a daily session. No direct foreign investment in the market is permitted, although some is believed to take place through illegal fronts. Foreign participation is permitted only through two Korean mutual funds based in New York and London.

Also, interest on savings and government bonds is strictly controlled here, at around 10%, and real estate loans have been made difficult to obtain in order to deter land speculation. That means that a lot of investment capital--and the economy produces a good bit of it--is soaked up in the profitable but also tightly controlled stock market.

South Korea’s political leaders are caught up in a presidential election campaign and have not been widely quoted on the crash.

There also has been little comment on the potential effect on the economy of South Korea, whose No. 1 and No. 2 trade partners are the United States and Japan, respectively.

South Africa

JOHANNESBURG--Newspapers and politicians here did not speak out publicly or angrily about who or what was to blame for the Great Stock Market Crash of 1987. But South African leaders and financial experts are highly interested in how the crash may affect South Africa and its efforts to become more economically self-sufficient.

The Johannesburg Stock Exchange fell 12% on Black Tuesday, one day after the Dow industrials’ 508-point plunge Oct. 19, losing about $21 billion in value.

Still, Business Day, a daily newspaper, commented in a recent editorial on Wall Street misfortunes: “For once, isolation has its advantages.”

That has been very much the view here. In an economy where gold plays the most important role, accounting for 40% of exports, President Pieter W. Botha told businessmen that the precious metal “and certain institutional features serve to some extent to insulate us against the impact of market fluctuations abroad.”

Gerhard de Kock, governor of the South African Reserve Bank, said the flight of capital from South Africa over the past two years had more serious implications for the country’s economy than the drop in prices on the stock exchange.

“I am grateful we find ourselves in a position of strength which will enable us to cope with the present difficulties,” he said. “The balance of payments is sound, interest rates are low and reserves adequate.”

De Kock added that he was pleased with the gold price of around $475, saying there was little chance of the dollar rising.

Gold prices often rise when the value of key currencies such as the dollar falls.

India

NEW DELHI--The crash on Wall Street and other world markets has received very little attention here.

“We are not connected to the trends of the global market,” said M. R. Mayya, executive director of the Bombay Stock Exchange, India’s largest. “We remain unaffected.”

There are a dozen stock exchanges in India, but like most of the Indian economy, they are heavily insulated from the world markets. Under Indian law, foreigners are not permitted to trade stock on the exchanges.

The Indian equivalent of the Dow Jones industrial index, which the Bombay market calls the “Sensitive Index,” has fallen a few points since Black Monday. However, no one seems too worried. Mayya, who did issue a press release this week to reassure investors, called the fall in the index an “unconnected readjustment.”

Compared to the U.S. economy, India’s is small potatoes indeed. The total market value in all the Indian exchanges, including some truly tiny ones in cities such as Gauhati and Kanpur, is only about $20 billion, less than 4% of the $500 billion trimmed from the value in U.S. markets on Black Monday. In fact, the paper loss on that day was twice the gross national product of India, with a population of 780 million.

Still, economists here are not completely sanguine. They forecast some long-term negatives if the problems in major markets lead to a worldwide recession or depression. The Japanese might stop buying huge amounts of iron ore from India. And Indians living abroad might be hard pressed to continue sending back the $40 billion per year that is so important to India’s economy.

Israel

JERUSALEM--Israel’s most immediate concern in the wake of Black Monday and the ensuing market turmoil is the $3 billion in annual aid that it receives from the United States. There is fear here that if Congress and the Reagan Administration try to cut the federal budget to soothe Wall Street, the foreign aid budget presents an inviting target.

About 25% of that foreign aid comes to Israel, and it is considered critical to the country’s economy. It accounts for upward of 15% of the national budget. If the Reagan Administration fails to make adequate budget cuts and Gramm-Rudman provisions come into effect, Israel stands to lose almost $150 million in annual aid.

Besides aid, Israel is concerned that a recession in the United States would hurt Israeli exports. Israel sells about $2.4 billion a year to the United States, or about one-third of all its exports. And there is also concern that stock market losses might make American Jews cut back on their donations to Israel, which amount to another several hundred million dollars a year.

In an effort to protect the U.S. aid money, the government here is pressing to have its entire $1.2 billion in so-called annual economic aid for the just-started fiscal year transferred immediately. (In addition, Israel has been promised $1.8 billion in military aid, much of which must be spent in the United States.)

Moreover, top officials have made several statements in recent days making it clear that they expect Washington to live up to promises it made in August, when Israel scrapped its multibillion-dollar Lavi fighter plane project, that the amount of U.S. military aid to Israel would not be cut for the next two fiscal years.

Foreign Minister Shimon Peres cautioned that the major problem in the United States is the general state of the U.S. economy. He warned that unless the United States takes “real measures” soon, what seems like a temporary illness will turn into a serious disease.

“We have faced a similar situation,” he said, “and this is not something you can solve with words and whispers.”

Soviet Union

MOSCOW--Alexander Zholkver, in a commentary on Moscow radio, said: “It is a fact that in the years of Reagan’s presidency, the U.S. state debt has risen by a trillion dollars, more than in the whole previous history of America.

“The reasons are well known: Excessive military expenditure, the unilateral injections of dollars, primarily in the military sector of the economy, reduce business activity in other sectors and make American products less competitive on world markets.

“The result is the huge U.S. foreign trade deficit,” Zholkver continued. “The news of a further growth in this deficit was in fact the direct reason for the current fever on the Stock Exchange. News of Washington’s military activity in the Persian Gulf further strengthened the panic. Thus, in a certain sense, the stock market . . . can be considered a barometer both of the economy and politics.”

Petr Fedorov, also commenting on Moscow radio, said: “It is difficult as yet to forecast the outcome of this financial catastrophe, since over the last half century, capitalism has learned how to maneuver. I believe that at the moment it is possible to say that this is another example of the illusory nature of the prosperity of capitalism and a grave warning to those who call for closer cooperation with capitalism’s financial system.”

Soviet Culture, a triweekly newspaper, said in its commentary: “This truly black Monday . . . will enter the U.S. history as the cruelest echo of Reaganomics--that anti-people, militaristic policy by the White House tenant, which made the rich even richer and the poor still poorer. . . . His program of rearming America has already cost more than $1 trillion to the American taxpayer, and the magnitude of unproductive military outlays undermine the country’s financial and economic mechanism.”

Canada

TORONTO--Canadian stock markets mirrored the pattern set by other major exchanges during the past two weeks, with major swings and now, apparent recovery and a sort of stability.

The 300 index of the Toronto Stock Exchange, the major operation in Canada, fell to 3,019.27 on Oct. 30 from an Oct. 1 level of just over 3,900 but had dropped to nearly 2,800 on Black Monday.

With the Canadian economy and its financial structure nearly integrated with the American system, the reasons given by analysts for the Canadian markets’ performance are generally the same as for the U.S. collapse--the U.S. budget deficit, the U.S. trade imblance, rising interest rates, fluctuating currency exchanges and an overall insecurity about Reagan Administration policies.

However, there were some local factors, including Canada’s federal spending deficit, which at more than $22 billion is more than twice as large in per capita terms as the American shortfall.

Further, because large numbers of Canadian stocks are in natural resource companies, the markets tend to be more erratic than New York’s, and this was reflected in the higher overall value of the TSE and greater day-to-day swings in the index even before the October activity.

More immediate problems faced several Canadian securities firms--McLeod Young Weir Ltd., Wood Gundy Inc. and Dominion Securities Inc.--all of which are underwriting shares of the British Petroleum privatization offering. They had agreed to pay about $462 million, with Wood Gundy, Canada’s largest brokerage company, taking half.

When the deal was put together, the price per share was $5.62, but the closing price last Friday was about $4.40, meaning that the three Canadian firms face an aggregate loss of at least $91.2 million.

“We’ve given up one quarter’s earnings,” said Thomas Kierans, president of McLeod, “troublesome, but hardly traumatic.”

Times staff writers Stanley Meisler in Paris, William Tuohy in Bonn, William D. Montalbano in Rome, Sam Jameson in Tokyo, David Holley in Beijing, Nick B. Williams Jr. in Seoul, Rone Tempest in New Delhi, Scott Kraft in Johannesburg, Dan Fisher in Jerusalem, William J. Eaton in Moscow and Kenneth Freed in Toronto contributed to this article.