Baker Asked Help Before Elections, Japanese Journalist Says : Author Tells of ‘Murky’ Agreements on Dollar

It won’t be competing on the best-seller lists with Donald Regan’s revelations about stargazing inside the White House.

But a new book by one of Japan’s most respected journalists, Yoichi Funabashi of the Asahi newspaper, provides the first behind-the-scenes look at how top officials in the United States, Japan, West Germany, Britain and France maneuvered among themselves to push the value of the dollar down starting with the Plaza Hotel agreement in September, 1985.

This campaign, which continued through the February, 1987, Louvre accord in Paris aimed at stabilizing the U.S. currency, marked a historic turning point in the nations’ approach to currency markets. Instead of relying exclusively on market forces to determine the dollar’s value, the governments moved toward managing it themselves.

Their maneuvers were cloaked in secrecy to prevent currency traders from taking advantage of inside information.

Former Deputy Treasury Secretary Richard Darman--at a lunch sponsored here by the Institute for International Economics, which released the book Monday--praised the author’s ability to extract the inside story by joking: “While the First Lady consults astrologers, heads of state consult Funabashi.”

Funabashi, after interviewing every major participant in the policy decisions in the key “Group of Five” countries, concluded that the “murky nature” of the agreements among the participants threatens to undermine the continuing effort to manage the dollar against other major currencies.

Wanted Help in Election

The principal virtue of the book, however, is its detailed blow-by-blow account of the efforts of Treasury Secretary James A. Baker III and his counterparts in other major industrial countries to move haltingly but unmistakably away from the Reagan Administration’s hands-off approach to the dollar.

For instance, the book, “Managing the Dollar: From the Plaza to the Louvre,” describes Baker as asking Japanese Finance Minister Kiichi Miyazawa at a secret meeting in September, 1986, for help in influencing the U.S. midterm elections.

This effort presumably would have involved Japan going along with a further decline in the dollar to help make U.S. goods more competitive on international markets. At the same time, Japanese investors would have had to be quietly encouraged not to pull their investments out of the United States.

Baker, according to Funabashi, told Miyazawa that he had helped Prime Minister Yasuhiro Nakasone just before Japan’s general election in July, 1986, by testifying in Congress that he opposed a further decline in the dollar. At that time, Nakasone was being attacked domestically for the rapid rise in the yen. Baker reportedly added: “Since we helped you last time, it’s your turn to help our election.”

Fighting Protectionism

It is not known how the Japanese official responded, but the two men announced shortly before the election a lower value for the dollar against the yen. A Treasury spokesman, saying Baker was unavailable because he is on an out-of-town trip, declined to comment.

Funabashi argues that contradictory domestic pressures within the three major countries were the immediate driving force behind the initial effort to promote the dollar’s decline.

The starting point within the Treasury Department was a desire to combat trade protectionism in Congress by easing the pressure on U.S. manufacturers reeling under the impact of the strong dollar. At the same time, Baker and Darman expected the dollar’s decline to pressure Japan and West Germany to stimulate their own economies.

In Japan, however, the Finance Ministry hoped to deflect outside pressures for such a stimulus by accepting a modest realignment of the yen-dollar relationship. Meanwhile, West German officials accepted the goal of a “soft landing” of the dollar out of fear that a free fall of the U.S. currency would sabotage their own position within the European monetary system.

Much of the maneuvering, the account makes clear, was part of the efforts by key policy-makers in each of the major countries to force other nations to absorb a greater share of the global burden of adjusting to the eventual reversal of the U.S. trade deficit, which grew from less than $30 billion in the early 1980s to a record $153 billion last year.