Is turn in US dollar policy in the offing

Lisa & Ian Murray seamus at accessone.com
Fri Feb 16 19:17:04 PST 2001


<http://washingtonpost.com/wp-dyn/articles/A11523-2001Feb15.html> O'Neill Plans a Different Approach to G-7

By Paul Blustein Washington Post Staff Writer Friday, February 16, 2001; Page E01

The finance ministers from the Group of Seven industrial countries are about to meet their newest member, Treasury Secretary Paul H. O'Neill, who made it clear yesterday that he will cut a different figure on the international stage than his Clinton administration predecessors.

At a news conference before departing for his first G-7 meeting, which will be held tomorrow in Palermo, Sicily, O'Neill said he won't come armed with a particular message but intends to ask some provocative questions.

Referring to his four grown children, O'Neill said: "One of the things I found, as we were raising our children, is that the hardest questions came from my children because they weren't bounded by conventional wisdom and knowledge. And I hope I'll be a worthy, child-like person in this first engagement with my counterparts at the G-7."

The contrast could hardly have been starker between O'Neill's approach and that of Robert E. Rubin, the Wall Street wizard who ran the Treasury from 1995 through mid-1999, and Rubin's academic deputy and successor, Lawrence H. Summers. The Clinton Treasury regularly lectured other advanced countries, especially Japan, on how they ought to adopt growth-inducing policies and thereby boost global economic prospects. But O'Neill, elaborating on recent comments he has made, voiced disdain for the Rubin-Summers strategy.

"I observe what has been attempted from outside of Japan over the last 10 years, which is to say, 'Do this, and do that,' a lot of which the Japanese government has done with ever lower interest rates . . . and the huge public spending programs," O'Neill said. "And the economy continues to roll along -- or maybe limp along is a better characterization -- at something around 1 percent" growth.

Asserting that he knows nobody who has "the magic answer" to what's wrong with Japan, O'Neill indicated he will approach his Japanese counterpart, Finance Minister Kiichi Miyazawa, in a manner more in keeping with the humbler foreign policy that President Bush has promised. "My question for Miyazawa-san and associates in Palermo is, 'How can we help you achieve the potential it's obvious you would like to have for yourself?' " O'Neill said.

And when asked whether the United States would approve or object if Japan adopted an even more stimulative monetary policy, as some economists are proposing, O'Neill replied: "I'm not going to tell them how to pursue a monetary policy. And furthermore, I would say to you, I don't think that's how you get real, lasting growth -- fooling around with abstractions that don't have anything to do with how real value is created in the world."

O'Neill did adopt a Rubin-like position in refusing to comment on foreign-exchange rates, and the Treasury issued a statement under his name that contained language reminiscent of the Rubin and Summers era. "The world must not rely on the United States as the engine of global growth," the statement said. "Others must also grow at their true potential rate. Europe and Japan must tackle challenges in their economies to help contribute to global expansion and a reduction in [trade] imbalances."

But while Rubin was especially assiduous in avoiding saying much that was quotable on international matters beyond the carefully scripted comments he and his aides prepared beforehand, O'Neill didn't hide his natural feistiness.

In response to a question about what he plans to tell his G-7 colleagues about the state of the U.S. economy, for example, O'Neill, a former aluminum company chief executive, suggested he would regard such a discussion as a waste of time because his comments on the subject in congressional testimony and interviews have been widely disseminated through the media.

"If there's really somebody [who's] going to be hanging on what I have to say at the G-7 meeting about, 'Well, this is what I think about the U.S. economy,' they've been asleep or something," said O'Neill. "Because it's all hanging out there."

In fact, other G-7 officials have said the U.S. outlook will be a major focus of the meeting. The specter of recession in the United States has aroused fears of a worldwide slump because American consumers have been "buyers of last resort" for the world's goods in recent years, and economists are divided on whether Europe, where growth is reasonably healthy, can pick up much of the slack. O'Neill acknowledged that a "speculative" look at the U.S. economy's prospects and its impact on other countries could be "useful." (Besides Japan and the United States, the other members of the G-7 are Britain, Germany, Italy, Canada and France.)

O'Neill said he appreciates the importance of establishing "a personal relationship with all of these important people," and hinted he may focus his sharpest queries on why bailouts led by the International Monetary Fund have so often failed to bring about recoveries in the countries receiving them. "I'd like to know who's responsible -- you know, if an intervention in a particular place doesn't work, who is it that's responsible?" he said.

For all his promises to refrain from lecturing Japan, O'Neill waxed philosophic about what might be needed to pull the Japanese economy out of its rut. The Treasury chief's thoughts on the subject, for now at least, appear rooted in his background as the head of an industrial giant and bear little relation to the pulling of fiscal and monetary levers that the Clinton administration stressed.

"You can say, 'Oh, we want a higher level of growth.' So what?" he said, asserting that economic growth is "a consequence of a whole lot of very complicated interactions that have to do with the way people and institutions assemble human resources and knowledge and technology in value-producing enterprises."

Although many experts credit Japanese manufacturing firms with having maintained an extremely high level of competitiveness even during the nation's period of stagnation, O'Neill indicated he thinks Tokyo may have a problem in this regard.

"If you were able to work at the theoretical limit -- and what I mean by the theoretical limit is the limit established by what God will let you do because of physical principles -- so that if you think you are finished being the best in the world, you just haven't thought hard enough about the problem yet," he said.

"I think by working this set of logic is how you get real growth in Japan," he continued. "It's by examining, where is the shortfall, compared to the best in the world. . . . The way you get no growth is to say, 'We're satisfied with what we're doing,' and then you will get no growth."



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