Financial Post, Weekly edition, Wed 05 Apr 95, page 4

Finger-pointing within G-7 troubling for world economy

Reuter

From rescuing the US$ to bailing out Mexico, the United States and its rich allies are having trouble working together - and that spells bad news for the world economy.

''There's very little in the way of co-operation,'' said David Gilmore, partner at consultant Foreign Exchange Analytics in New York.

Although the US$ popped up a bit yesterday, it is still down 13% against the Japanese yen and some 11% against the German mark. And Mexico's economy still looks shaky despite a U.S.-led US$50-billion rescue package.

Co-operation among the Group of Seven countries - Britain, Canada, France, Germany, Italy, Japan and the U.S. - began fraying in February with the Mexican rescue.

European countries in particular objected to the plan as an expensive bailout of a nation that had failed to keep its economic house in order, and they are still smarting from being bullied by the U.S. into joining the package.

That resentment has not helped as the G-7 struggles over the fall of the US$.

On Monday, the U.S. and Japan banded together to buy US$s in the foreign currency market. European countries, which had joined Washington and Tokyo in buying US$s a month ago, were conspicuous by their absence.

It was the U.S. that was the odd man out last week as Germany and Japan cut interest rates, but the U.S. Federal Reserve held off from tightening credit even though that might have helped buoy the US$.

Europe, particularly Germany, has pointed the finger at the U.S., which is running big budget and trade deficits.

The U.S. has at times tried to pin the blame for the US$'s fall on Japan, arguing that its ''closed'' markets and weak economy have led to a widening of its trade surplus.

Some U.S. officials have also pointed the finger at what they call ''mark mania'' in Europe, fed by uncertainties in several countries including Italy.

Not only have G-7 countries been unable to agree about what is behind the US$'s fall, policymakers in individual countries have at times seem divided.

Japan's Finance Ministry, faced with strong demands from the U.S. for a Japanese interest rate cut to buoy the US$, openly called for a reduction in the Bank of Japan's discount lending rate last week. But the bank, anxious to show its independence, resisted - a move that failed to aid the US$ and sent Tokyo stock prices crashing.

U.S. Treasury Secretary Robert Rubin has repeatedly professed his desire for a strong US$, but administration officials seem at a loss about what to do about the currency's weakness.

	This information is provided by the Financial Post.
	Please send comments to: g8@utoronto.ca Revised: June 3, 1995

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