G-7 SEEMS WORRIED MARKETS IGNORE COORDINATION
  Top officials of leading industrial
  nations appear deeply worried that financial markets have
  ignored their efforts to coordinate policies, which they
  believe they strengthened in talks last week.
      Monetary sources said officials were exasperated that the
  markets, which drove the dollar rapidly lower and severely
  disrupted bond and stock markets too, did not take heed of the
  policy commitments of the Group of Seven -- the United States,
  Japan, West Germany, France, Britain, Italy and Canada.
      Treasury Secretary James Baker went out of his way to
  reassure markets of his commitment to a stable dollar with a
  statement, and French Finance Minister Edouard Balladur
  underscored that by saying: "I don't believe at all that the
  Americans want a weaker dollar."
      West German Finance Minister Gerhard Stoltenberg said the
  dollar's latest rapid descent "involves the risk -- now already
  a tangible threat -- of a new strong surge of inflation,
  leading to a renewed rise in interest rates."
      But there were signs too, that while policymakers feared
  the market uproar, they seemed to accept there was little they
  could do until the economic picture changed, and currencies
  settled into a stable pattern as a result.
      Nor did there seem to be any enthusiasm at last week's
  semi-annual meetings of the IMF and the World Bank for higher
  U.S. Interest rates as the best way to curb the dollar's rapid
  descent. That distaste stems in part from fears of recession.
      Outgoing Deputy Treasury Secretary Richard Darman told
  television interviewers he did not think a policy of driving
  the dollar down would solve the U.S. trade deficit.
      "It would slow growth in Germany and Japan which would
  adversely affect our trade balance and ultimately it would
  drive interest rates up here which would throw us, if not
  (into) recession, into slower growth," he said.
      Asked if higher U.S. Interest rates would stabilize the
  dollar, Balladur said: "When a currency is maintained
  artificially high, by artificially high interest rates, it is
  not healthy."
      And resorting to higher interest rates could lead to
  recession, he said.
      Acknowledging the dollar's latest slide was now a fact of
  life, Balladur said, "there may be adjustments of course in one
  or other currencies, this is not a fixed rate system."
      But Federal Reserve Board chairman Paul Volcker said he
  might rein in credit if the dollar's slide deepens.
      U.S. Monetary sources also said Washington wanted it
  understood by markets the seven's commitments were genuine.
      "The United States and the six major industrial countries
  are fully committed to implementing our undertakings in these
  agreements," Baker told the meetings.
      Darman said Baker had been misinterpreted by markets which
  wrongly believed earlier remarks suggested he wanted a further
  decline in the dollar. Baker, Darman said, was committed to
  stabilizing currencies at current levels.
      Last week's statement from the seven reaffirmed a February
  22 agreement in Paris in which the Reagan administration agreed
  to reach a budget deficit compromise with Congress and to fight
  protectionism.
      West Germany and Japan, meanwhile, agreed to stimulate
  domestic demand and lead a global upturn.
      Ministers believed the Paris pact was bolstered by Japan's
  promise of a 35 billion dlr supplementary budget.
      The sources said they believed Baker saw it as a major
  action. But the seven seem to accept their commitment to stable
  currencies applied to today's exchange rates and not those at
  the time of the Paris agreement, when the dollar stood higher.
      The Paris accord said, "currencies (are) within ranges
  broadly consistent with underlying economic fundamentals, given
  the policy commitments summarized in this statement."
      Now they accept the dollar's lower level, especially
  against the yen, as hard reality that is nonetheless consistent
  with the agreement. "The ministers and governors reaffirmed the
  view that around current levels their currencies are within
  ranges broadly consistent with fundamentals," last week's
  statement read.
      Monetary sources said policymakers understood markets were
  focusing on instability created by the gap between the U.S.
  Trade deficit and the surpluses of West Germany and Japan
  rather than prospective policy changes. European monetary
  sources said Bonn was still unconvinced that Washington meant
  business with its commitment to cut the budget deficit.
  

