7 Finance Ministers Agree That Dollar Is Near Its Proper Level

Finance ministers of the United States and its major economic allies declared Wednesday that the dollar continues to be near the proper level and renewed their earlier pledge to cooperate “closely” to keep exchange rates stable.

In a joint communique, the seven--representing the United States, West Germany, Japan, Britain, France, Italy and Canada--warned that any further decline in the value of the dollar “could be counterproductive by damaging growth prospects in the world economy.” They called for the continuation of current rates for the foreseeable future.

The move, which followed a day-long meeting here, was aimed at maintaining the calm that has prevailed recently in the world’s foreign currency markets and at averting another dollar slide, which the ministers contend would hurt the West German and Japanese economies and spur more inflation in the United States.

As expected, the ministers did not unveil any additional policy measures to help deal with imbalances in world trade and balance of payments, which some say could bring on another crash in the financial markets unless further steps are taken. U.S. officials have been reluctant to propose any new initiatives before the November presidential election here. Japan already has moved to stimulate its economy so it can absorb more imports. And West Germany remains opposed to adopting any measures at all.

Instead, the seven indicated that they would begin concentrating on ways to make their economies more flexible by reducing structural barriers such as excessively restrictive work rules. The issue is expected to be a major focus of the seven-nation economic summit conference, an annual event that will be held in Toronto this June.

In their statement Wednesday, the ministers also dismissed calls by critics--including many Democrats in Congress--for “global debt-forgiveness proposals,” which they warned only “transfer risks from the private sector to . . . international institutions or creditor governments.” They called the prevailing strategy of dealing with debtor countries on a case-by-case basis “the only viable and realistic approach for overcoming international debt problems.” Their statement marked the strongest rebuff of such alternatives in several years.

The meeting marked the first time that the finance ministers, known informally as the Group of Seven or G7, have met since last October’s stock market crash, which itself was triggered partly by the dollar slide that occurred last September and October. The U.S. currency fell even further during the weeks following the stock market crash.

The seven issued a statement last Dec. 22 after a series of telephone conferences saying that the dollar’s value had fallen enough and hinting that they were once again prepared to intervene in the foreign currency markets if necessary to prevent further fluctuation. Since then, currency rates have been unusually stable and the dollar now remains close to where it was in December.

The language in Wednesday’s communique was almost identical to that which the finance ministers used in their Dec. 22 statement. Besides warning against a further decline in the dollar’s value, the ministers also repeated their admonition against any rise that is so large that it “becomes destabilizing.”

As expected, there was no indication that the ministers had set specific upper and lower limits within which the dollar’s value should fluctuate. Rumors early last week had suggested that the group might try to peg the Japanese yen at about 125 yen to the dollar, but officials in several countries denied that. The rate Wednesday was a little over 126 yen to the dollar, about the same as it was last Dec. 22.

The ministers also adopted a proposal by U.S. Treasury Secretary James A. Baker III to develop a new commodity price index to provide an early warning against renewed inflationary pressures. The communique conspicuously omitted any mention of gold as one of the commodities to be used--a major part of the Baker proposal.

Japanese Finance Minister Kiichi Miyazawa hinted later that the gold provision may have run into a snag. “It was not an issue on which we could reach a prompt or quick conclusion,” he said.

However, Treasury officials insisted that the omission merely reflected technical difficulties, not any opposition within the Group of Seven ministers, and said that the metal would be included in any index ultimately adopted. Baker is believed to have inserted the gold requirement in his proposal to placate conservative Republicans.

Harmonious Session

The ministers also went out of their way to portray their meeting as harmonious, hoping to avert the consequences of a similar session last September, when an open dispute sent the currency markets into a tizzy. A Treasury official said Baker regarded the ministers’ review of the world economic situation--based on other economic indicators and benchmarks--as “the best they’ve had. They didn’t just drink sherry,” the official said.

Baker’s sentiments were echoed by Miyazawa, who said that Wednesday’s session was the most harmonious of all the sessions he has attended. “The participants were in high morale,” he said. “We are beginning to see the fruits of our efforts.”

The seven also softened a bid by French Finance Minister Edouard Balladur to prod the group into launching a formal study on the feasibility of moving back to a system of fixed exchange rates, such as prevailed before 1973. Instead, in what amounts to a gesture to the French, they agreed only to consider ways to improve the existing monetary system “in the context” of their current discussions.

Balladur, supported by British Chancellor of the Exchequer Nigel Lawson, had hoped to move the group farther along, but the United States and West Germany objected.

IMF Weighs Changes

The announcement came as the policy-making Interim Committee of the International Monetary Fund prepared to approve modest changes in the IMF’s borrowing rules today to make it easier for heavily indebted countries to borrow from the 151-country organization.

The panel, which is made up of finance ministers from industrial and developing countries, is expected to endorse the creation of a new lending pool designed to protect debtor countries from unexpected shocks, such as global interest rate hikes or natural disasters, that might otherwise derail their efforts to put their economies in order.