DOLLAR FALL CONTINUES DESPITE INTERNATIONAL EFFORST TO HALT SLIDE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP93T01142R000100100001-1
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 26
• Document Creation Date: December 22, 2016
• Document Release Date: September 9, 2011
• Sequence Number: 1
• Publication Date: January 20, 1987
• Content Type: OPEN SOURCE

. w.u4 aL
in technology
Sex continue its
of New Year
he record se-
.tive rises set in
advance from
fastest in Wall
ig just 11 days
tstetday's close.
price sank to a
it the embattled
s and animal
re-started on
:ial market fol-
my's expulsion
range last week.
overnment is to
?rat stake in the
tie concern Veba
As to raise DM
17
isness over the
liar and the early
I Street brought
swing in share
he FT-SE 100 in-
down at 1,778.4
inary index shed
gilts closed with
half a point.
a record high on
Nikkei market av-
19.05 to 19,188.68.
)86 1987
75 to $422 on the Lon-
arket. It also rose in
:.75 ($418.55). In New
sex February settle-
1.30. Page 30
rd in New York at DM
22; FFr 6.0775 and
in London to DM
40); it also fell to
to FFr 6.06 (FFr
0 (SFr 1.5440), On
figures the dol-
103.7 from 105.1.
Approved For Release
of over one million Reports from
Basra say shells have been landing
at the rate of more than one a mi-
nute, causia& extensive damage
and fording many thousands to flee
their homes.
Baghdad said yesterday evening
2011/09/09 CIA-RDP93TO 1142R000100100001-1
separates the two countries south ly an its"limited stocks of equip-
of the city. meetdand ammunition. Duri the
The cost to Iran of maintaining past three years Iraf ran aag tucks
the offensive will add substantially have usually been halted within a
to the already heavy casualties it fortnight, despite territorial gains.
has suffered. But if Its forces wee The longer Iran continues its
able to reach the outskirts of the present offensive the greater the
ollar fall continues
despite international
efforts to halt slide.
BY OUR FOREIGN AND ECONOMICS STAFF
THE DOLLAR, confounding expec-
tations that this week would see a
recovery after its recent precipitous
fall, opened sharply lower yester-
day despite another wave of Bank
of Japan purchases and apparent
efforts by international officials to
talk the currency higher.
However, after a hectic morning
in which European traders raced to
adjust their positions to the decline
in the Far East, activity calmed in
the absence of US banks, which
were closed for a public holiday.
The dollar had plunged in Tokyo
to a post-war low of Y150.45 in re-
cord trading volume of more than
$10bn despite the Bank of Japan's
intervention. However, it recovered
some ground to close in London at
Y151.30, still well below the pre-
weekend close of Y153.40.
It remained weak against the I)-
Mark, closing in London at DM
1.8120 from Friday's closing ofP..M
1.8440. It had touched a low of DM
1.8025, a level not seen since mid-
October 1980.
Sentiment remains firmly
weighted against the dollar How-
ever, yesterday saw some caution
against pushing the dollar even
lower from its historically weak lev-
els, particularly amid confusion
about how the key Group of Five
players will react to events on for-
eign exchanges.
Speculation centres on the pos-
sibility of interest-rate cuts in West
Germany and Japan once the Ger-
man election on Sunday is out of
the way.
The Japanese authorities were in
some disarray yesterday, fearing
that the fresh strengthening of the
yen would undermine the econo-
o-
1
$ per ?
1?45J Against sterling
my's modest growth probpec this
year.
Some officials were bitter at the
lack of US efforts to halt the dollar's
fall, while others warned that'spec-
ulators would be hurt when the
New York market opened today.
There were calls for early high-lev-
el international meetings to discuss
exchange rate problems.
Mr Kiichi Miyazawa, Japan's Fi-
nance Minister, said that the West
German authorities had, proposed
consultations with Japan aimed at
stabilising foreign exchange mar-
kets.
However, he said there were limi-
tations on what the two countries
could achieve and warned that be-
fore any bilateral discussions were
held with West German officials,
the two sides should be reasonably
sure of what thsy could agree on.
Bank of Japan officials and Mr
Miyazawa steered clear of direct
criticism of the US authorities for
their appruent lack of concern
about the dollar's falL They said
they were receiving no clear signal
that the US was deliberately taking
the dollar down.
Some central bank officials, how-
ever, were quoted as threatening to
stop co-operation with the US on in-
terest rate policy unless the US pro-
vided more support for the dollar.
In West Germany, the continued
fall in the dollar caused a sharp fall
in share prices and raised specula-
tion among foreign exchange deal-
ers that the discount might be
cut from the present cent at
Thursday's meeting of the Bundes-
bank council.
Mr S the Fl-
nanM r, vid11 Mien mme~eet~
, ai_ tall the latest EMS real-
ignment. He said yesterday that the
central bank would"alro be looking
at how much scope there was for in-
terest-rate cuts.
Responding to suggestions of pos-
sible talks on the currency markets
between Japan and West Germany,
Mr Stoltenberg said there were reg-
ular contacts between officials but
no plans for a political meeting.
Many foreign exchange dealers
expect a discount-rate cut after the
election. However, they are doubt-
ful whether such a move would be
made on Thursday after Mr Karl
Otto Pohl, president of the Bundes-
Continued on P
Export fears hit West German
shares, Page 2; currencies,
Page 31
l"_f
need .to deaoi
political succes
Should Iran
it is probable th
Gui
buy
flee
BY CLIVE WOI
THE CONTRACT
ment and mainter
ness and Distiller
bering about 30(
awarded to Mr
Heron Corporatior
the Guinness tale
Distillers last Year
terday.
Mr Ronson wr-
chaser of Gui:
the final stage:
tie when, the
tad, some of it,
massive share
Oise in possible
Companies Act.
operation, whic
the focus of a
Britain's Depart
Industry (DTI),
Guinness share
and enhance the
Distillers shareh
Mr Ronson 9;
We had lnformei
l~spu:rgtase
of
and had offere
oration. by the
had won the
April 18, Mr Rot
on subsidiary,
Trading, had s
($3.8m) on buyin
The first contr
Herondrive earl;
after Guinness It
ed takeover bid
ondrive is a su,
Motor, which in
Heron Internatio
pany controlled 1
contract, which
basis, applied to
the sales force a
the Guinness
and the Guinne
The secon
in New York at
DM 2.78 (DM
50 (FFr 95250 Olivetti and Canon form venture
i50 (FFr 9.3525);
r 2.34); and to Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
 Approved For Release 2011/09/09: CIA-RDP93TO1142ROOO1OO1OOOO1-1
to halt slide
- was 14 times
oversubscribed.
Mr Edouard Balladur, the French
Finance Minister,
clawback rights in full and reduced
18e peracent of the offer, in order to
provide more shares for the domes-
tic offering.
Overseas investors are already
anxious that the same clawback
rights may be used again with Pari
b and the 6.3m on offer abroad be cut shares currently
back.
$ falls further
despite moves
u 1
BY RICH
THE CO!
ery public
could tak
compliant
about to
main rep:
The In:
aries and
the print
the prof(
sponded
drawing
changei
role.
Instead
sort' cal
fecting 1
would till
dog rolgrti
entere4 @,
Continued from Page 1
point lower at the close.
$1.5340 compar
closing $1.5160, but its trades 69 0
ed index finished unchang ain.0
as it continued to weaken ag
Continental currencies.
UK money-market interest rates
eased somewhat in the response
se but
sterling's rise against
this enthusiasm t was not shared
100
equities and gil. The FT-SE
share index closed 10.6 lower at
in ex
1778.4 and the FT Ordinary
UK Govern -
0
was down 6.0 at 1391 .
ment bond prices
E
BY Q JE
NEGO1A
ute bean
P ti
terday'was
'
main
der
lost 1)S
extre4
for ~fl
week,
tiatioijs in, t
Mo t!1
wor~
trad; 1@
of sit
neg
pot - against the
Sterling rose sharply aweak dollar to end in London at
ed with Friday's
eir p
t
Set against the claims of West
German industry is the Bunde
bank's desire to control the central
bank money stock which is growing
exac-
well above target, a problem
erbated by intervention to support
the dollar. It seems likely that the
arguments at Thursday's Bundes-
bank council meeting will be finely
'sed
Although ea
predicting a comfortable victory for
the centre-right coalition of Mr Hel-
mut Kohl, its handling of the econo-
my is being called more and more
into question. A leading Munich-
based bank, Bayerische Hypothek-
re-
en- and Wechsel-Bank forces dnn the
port that the growth had passed
West German economy
e
h ak
bank, last month firmly ruled out a
reduction ahead of or just after the
vote.
The sharp fall in West German
share prices yesterday came as in-
vestors showed mounting concern
over the effect on German exports
of the dollar's continued rapid
con-
tinue. and the selling is expe
tinue.
1 ding pollsters are
host" becat
gistical sUl
Many he?
tioning the
airport onl;
the or .fn
haslet ttu
(task.,,
Approved For Release 2011/09/09: CIA-RDP93TO1142ROOO1OO1OOOO1-1
 Iber.
try Depart
)2 billion in
Is at an av-
rate of 5.23
from 5.38
:k. An addi
on was s
s at an
ate of
from 5'
the lowest
hen three-
for 5.18
nonth bills
vent.
investors:
selling for
9,733.60.
rage yield
)r making
percent last
Sill
for tough
last?year.
rom coun-
they were
ratic lead-
from the
ill induce
ittee, said
ger to the
to reduce
making a
lit
to sell its
i million as
major pro-
dustrial ap-
tat includes
:rategic ma-
more favor-
excellent
chairman
lay.
See , F2, 1.4
BY JAMES M. THRESHER-THE WASHINGTON POST
Korean workers prepare Hyundai cars for export to the U.S. and Canada.
Consumers Could Feel Effect in Prices
valttp. of thA dollar hPtwPPn 1 QR(1 upara ann that. ,tngar was worth
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
,r.,vwua,.tutu set Lronl LNOV. ly to anu (Iowa ail u.,,. nercent drop in th
Do Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1 I severe corre(
moved up for 12 consecutive days, shares, which is the seventh heavi- tion.
gaining 8.3 percent. est on record. The profit taking came in man
The Dow closed yesterday at Market analysts said they were of the blue chip stocks. Beside
up 1.97 for the day, after not surprised to see a pause in the IBM, which fell $2.50 to $122.75
up 12 points and then market's upward move. Westinghouse fell $3.25 to $64.63
Deficit
Growing
With Asia
Linked Currencies
Fuel Trade mbalance
Cfad` ' 7
By Jane Seaberry
Washington Post Staff Writer
While Japan and West Germany
were being accused last fall of ag-
gravating the U.S. trade deficit,
Treasury Secretary James A. Baker
III was warning the small Asian na-
tions of Taiwan, Korea and Hong
Kong that they were in big trouble,
too.
Baker was saying that the mas-
sive U.S. trade deficit would not be
reversed solely by a drop in the val-
ue of the dollar against the curren-
cies of Japan and West Germany.
It will continue to grow without a
reversal in the trade pattern with
these newly industrialized coun-
tries, whose combined trade sur-
pluses with the United States are
larger than those of either Canada
or the European Community.
When the dollar falls, it makes
U.S. goods relatively cheaper than
foreign goods, which, theoretically,
increases U.S. exports and reduces
imports.
 ism and pa -ort the
Approved For Release 2011/09/09: CIA-RDP93T01142R000100100001-1
payment, Y.U LULVL 11 L,UUIILLI'.O ..a .. ..... ..... ............ ... ..._ -
"Small countries find it hard to believe that their sur-
U.S. Deficit Still Growing pluses are causing protectionist pressures here," Berg-
A. em a
'd "Y t t d th th t what the 're
With Small Asian Nations
Taiwan, Korea and Hong Kong continue to grow be-
cause their currencies are linked to the dollar; when the
dollar's value changes, the values of their currencies
stay relatively the same. The falling dollar does nothing
to remove the price advantage they enjoy over U.S.-
made goods.
made
Since the dollar fell from its peak in February 1985,
the U.S. trade deficit with Taiwan has grown from
$12.2 billion in 1985 to $14.7 billion for the 11 months
of 1986; with Hong Kong, from $5.7 billion to $6.0 bil-
lion; and with Korea, from $4.3 billion to $6.7 billion,
according to the Commerce Department.
"One of the reasons the Japanese are so panicked
about the rise in the yen is the Asian NICs [newly in-
dustrialized countries]; said C. Fred Bergsten, director
of the Institute for International Economics. "If we can
get Taiwan and Korea to let their currencies go up, that
will help get the Japanese currency up, because then
the Japanese won't be so resistant.
y
step sat . ou ).Y o persua
doing affects our politics."
In recent days, the Taiwanese government has re-
valued its currently slightly, he said. "It's a combination
of pressures on them to do something about this huge
trade suplus," Bergsten said.
Taiwan has received a big inflow of foreign exchange,
which increased its money supply and threatens to ac-
celerate inflation, Bergsten said.
The Taiwanese government also has had external
pressure.
"They have had some entreaties from the United
States and others that they really have to do something
to get their surpluses down or they'll be hit with pro-
tectionism," Bergsten said.
Sara Johnson, an economist for Data Resources Inc.,
said she expects further revaluation of Taiwanese cur-
rency because the country has a large trade surplus and
"is in a good position to withstand some deterioration"
in its trade picture.
For other newly industrialized countries in Asia, cur-
rency revaluation may be more difficult. Korea, for ex-
ample, is heavily in debt to foreign banks and needs its
trade surplus to pay off these loans, Johnson said.
A -- --] Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1 'er, that
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
ar Hits
w Scars
Deny Claim
)nly." Iran has alleged
is used chemical weap-
battlefield, but Iraq has
allegations.
'other example of why
r-old Persian Gulf war
extremely difficult to
nce both sides closely
less to the front and
conflicting claims of
-rucial southern front
?eported that its forces
A through Iraqi de-
Basra and were poised
)ur more islands in the
b waterway, including
is Sas, which Iranian
ly occupied during a
eek offensive.
'ues to deny the Iran-
)pping operation up
c waterway and its
ik, but military ana-
JLF, A16, CoL 3
A New Low
ainst Yen.-.
5 Industrial Powers
May Have to Act
To Prop Up Currency
By Hobart Rowen
Washington Post Staff Writer
The dollar plunged yesterday to
its lowest level against the Japanese
yen since just after World War II,
amid speculation the world's major
industrial nations soon will be
forced to take new actions to but-
tress the world's leading currency.
Representatives of the five major
industrial powers-the United
States, Japan, West Germany, Brit-
ain and France-could meet any
time after the West German elec-
tions this Sunday.
Japanese Finance Minister Kiichi
Miyazawa will meet late Wednesday
in Washington with Treasury Sec-
retary James A. Baker III to discus?
the monetary situation. The meet-
ing, according to administration
sources, was arranged at the re-
quest of Miyazawa.
Baker is scheduled to see Miya=
zawa after he returns from a one-
day trip to Canada to meet with Ca-
nadian trade officials. At that meet-
ing, according to government
sources, Baker also will discuss the
monetary situation with Canadian
finance officials.
Miyazawa told a press coni i,ence
in Tokyo that he had asked his staff
to study the possibility of a Group of
Five session to consider the presept
monetary crisis. The next meetipg
of the five industrial powers known
as the Group of Five would not nor-
mally be held until early April in
Washington as a preliminary to the
meetings of the International
ry Fynd and the World
*eraae breaks 2100 bar-
wostages. Page Ali profit taking. Page G I
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
 I `JUOOIUIII .y WAIL au . ....,.._ _ ne buzz saw."
package will be passed b3 'Approved For Release 2011/09/09: CIA-RDP93T01142R000100100001-1 Broder and Don Phillips
Dollar at Lowest
DOLLAR, From Al
It was the Group of Five that
originally orchestrated the deval-
uation of the dollar at a meeting at
the Plaza Hotel in New York in Sep-
tember 1985 in an effort to lower
the record U.S. trade deficit.
The Reagan administration ap-
pears concerned that the trade def-
icit will continue to be a drag on the
American economy unless there is a
further substantial devaluation of
the dollar. The U.S. trade deficit is
running at a record annual rate of
$170 billion for the first 11 months
of 1986. A continued slide in the
value of the dollar could help reduce
the trade deficit by making Amer-
ican exports cheaper and therefore
more competitive.
But many economists warn that
such a slide also presents a danger
that higher-priced imports could
contribute to a new inflationary spi-
ral, especially by providing an eco-
nomic shield for American produc-
ers, who might otherwise cut
prices.
There is also concern that a rapid
plunge of the dollar would shake
confidence in the United States
economy, discouraging the flow of
investment money from abroad that
now helps finance the huge federal
deficit. If that were to happen, in-
terest rates here would have to rise
to attract investment funds at home
to replace the flow from abroad.
Japanese and West German of-
ficials again made clear yesterday
that they fear a plunging dollar-
causing a skyrocketing of their own
currencies-may bring about re-
cession in their economies. This
would make it hard for them to buy
ainst Yen Since the Late 1940s
?se
Tokyo money brokerage was busy yesterday as dollar dropped against yen.
American goods, the U.S. objective
in lowering the value of the dollar.
Baker "has the power to destroy
us," said a German official, refer-
ring to a Newsweek report this
week claiming Baker wants the
German mark to appreciate to 1.70
to the dollar. "We can't sustain that,
it would bring us down," the official
said.
In Tokyo, the dollar slid at one
point below the 150 yen mark for
the first time since 1949, to 149.88
yen, before recovering to close at
150.45 yen with the help of about
$2 billion worth of intervention by
the Japanese central bank. The Fri-
day close had been 153.10 yen.
Early today, the dollar opened at
151.80 yen in Tokyo.
In other currency trading yester-
day, one British pound cost $1.5370
in London late yesterday, up from
$1.5160 late Friday and a level last
reached on July 8, 1986. By the
time trading closed in New York, a
pound cost $1.5245, up from
$1.5195 on Friday.
Other late dollar rates in New
York, compared with levels late Fri-
day, included: 1.8310 West German
marks, down from 1.8420; 1.5280
Swiss francs, down from 1.5425;
1.3608 Clanadian dollars, down from
1.3611; ' 6.1075 French francs,
down from 6.1684, and 1,309.00
Italian lire, down from 1,310.00.
At the 150 level; the yen has ap-
preciated 61 percent since the Pla-
za Hotel agreement. The yen's rise
has crunched the Japanese econo-
my, slowing its exports and trigger-
ing a rise in unemployment.
Now that the pendulum has
swung the other way, Japan and
most of the other powers contend
that it is the dollar that is underval-
ued and their currencies that are
overvalued.
The Los Angeles Times reported
from Tokyo yesterday that Hajime
Tamura of the Ministry for Inter-
national Trade and Industry said
the Japanese government had set a
target of 170 yen to the dollar,
"plus or minus 10 points."
Until yesterday, ever since an
exchange rate system between Ja-
pan and the United States was es-
tablished in 1949 at 360 yen to the
dollar, the yen's high-water mark-
equally, the dollar's low point-had
been 153.05 yen on Aug. 20, 1986.
The downward spiral of the dollar
also has been accelerated, many
believe, by the Iran/contras scandal
gripping the Reagan administration,
which has raised doubts about the
president's leadership. "In Europe,
that's what we worry about," said a
diplomat yesterday.
Treasury officials reportedly are
ready to see the yen appreciate to
140 to the dollar. Sen. Lloyd Bent-
sen (D-Tex.), chairman of the Fi-
nance Committee, which is consid-
ering legislation that might restrict
Japanese imports, has called for the
yen to rise as high as 120 to the
dollar.
The American effort to force an
increase in the value of the yen and
the West German mark may be
pushing Japan and West Germany
closer together in an effort to seek
a solution to their common problem
with the United States.
Approved For Release 2011/09/09: CIA-RDP93T01142R000100100001-1
 e was time to him srncN._
Approved For Release 2011/09/09: CIA-RDP93T01142R000100100001-1
Witter office in downtown Washing-
y ton, said, "We're getting much
?s more ptib#i+participation than be-
fore." The number of tickets writ-
.0 1OCKS, F4, Col. 1
jident
Reassured
On Dollar
But Danger Is Seen
In Long-Term Fall
By Hobart Rowen
and David Hoffman
Washington Post Staff Writt'rs
President Reagan was told by toy
White House advisers yesterday
that the dollar could continue to
decline without any immediate
harm to the economy, but that over
the long term a falling dollar could
rekindle inflation, according to ad-
ministration sources.
The president received the ad-
vice as Japanese Finance Minister
Kiichi Miyazawa was en route to
Washington for a meeting with
Treasury Secretary James A. Baker
III in an effort to brake the dollar's
slide.
Reagan raised the question of the
falling dollar at his weekly issues
luncheon yesterday, asking his top
aides when the decline would "begin
to hurt," administration sources
said.
His aides, including chief of staff
Donald Regan and Council of Eco-
nomic Advisers Chairman Beryl
Sprinkel, indicated that they were
not alarmed by th me and told
See POLIC , F5 ol. 1
and Jobs
Approved For Release 2011/09/09: CIA-RD P93T01142R000100100001-1
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
THI; WASHINGTON POST
Reagan Reassured on Short-Term Dollar Decline
the president the dollar could con-
tinue to fall without harming the
economy until the trade deficit be-
gan to'turn around, the sources
said.
After that point, the advisers
said, a continued decline of the dol-
lar might have an inflationary im-
pact.
Sprinkel, who would not confirm
the above account, later said in an
interview: "We discussed both the
pluses and minuses of a declining
currency, and made no statement
about the right level [of the dollar]."
Meanwhile, signs emerged that
Japan and West Germany may be
ready to cut their central bank dis-
count rates in an effort to obtain
U.S. help in stabilizing their ex-
change rates with the dollar.
ury and the Fed," New York econ-
omist Henry Kaufman said.
Despite the continuing uncertain-
ties, the dollar opened today in To-
kyo at 152.25 yen, unchanged from
its close yesterday, which was up
from 150.45 yen at the finish Mon-
clay. Over the past 10 days, in the
wake of a flood of statistics showing
no improvement in the record U.S.
trade deficit, the dollar had plunged
to all-time lows against the yen and
weakened to six-year lows against
European currencies,-
Financial markets, feeding on
news reports from Japan on what
Miyazawa intends to propose at to-
clay's meeting, sensed the possibility
of a deal that would stabilize the yen-
dollar relationship. An earlier Miya-
zawa-Baker meeting produced an
agreement on Oct. 31, 1986, pledg-
"Baker is bound to ask Miyazawa
for credible action on the fiscal
side," said C. Fred Bergsten, direc-
tor of the Institute for International
Economics. One possibility would
be a delay in the revenue-raising
aspect of Japan's new tax program,
transforming it into a fiscal stimulus
for the next couple of years.
The appeal of lower Japanese and
German interest rates is that the
cuts would make the yen and mark
slightly less attractive for investors,
thus pushing the dollar up-espe-
cially if the Federal Reserve Bank
of New York, acting for the Treas-
ury, stood ready to buy dollars or
sell other currencies as needed.
A leading West German commer-
cial banker with close ties to Stolten-
berg, Alfred IIerrhausen of Deutsche
Bank AG, predicted in Frankfurt that
the German central bank, which for
months his resisted Baker's plea
that it cut its discount rate, would
take that action Thursday.
But now the Baker position may
he that lower interest rates, with-
out action on the fiscal side, will not
provide sufficient boosts to the Jap-
anese and German economies and
therefore would have little effect on
the trade deficit:
But Volcker has a different con-
cern. He indicated through a
spokesman last week his belief that
the dollar decline, if unchecked,
might feed inflationary fires by forc-
ing tip the price of both domestic
and foreign goods.
. In addition, Volcker. and other
members of the Fed board of gov-
ernors worry that if the United
ary a
a
rs.
But there was no indication that Miyazawa reportedly carried a
Baker was ready to intervene in the letter from Prime Minister Yasu-
exchange markets or in any other hiro Nakasone to Reagan urging a
way abandon the clearly defined coordination of policy by the two
U.S. view that the dollar needs to countries to stop a further rise in
decline further against the yen and the yen, which already has caused a
the West German mark in order to serious deterioration in the Japa-
bring down the burdensome U.S. nese economy.
trade deficit. The ingredients of the "deal"
Federal Reserve Board Chairman talked about in Tokyo and in New
Paul A. Volcker appears to fear an York financial markets would be a
almost immediate inflationary im- reduction in the Japanese discount
pact of the dollar's fall, however, rate-presumably to be followed by
Volcker has almost openly dis- similar action in West Germany-in
agreed with Baker's effort to talk exchange for a U.S. commitment to
the dollar down, fearing its infla- intervene in the markets to support
tionary effects and a loss of confi- a given yen-dollar rate,
dence in the U.S. economy among Miyazawa indicated in Tokyo on
foreign investors. Monday that he and West German
Volcker is likely to make this view Finance Minister Gerhard Stolten-
explicit at a hearing this morning be- berg had been in touch on possible
fore the Senate Banking Committee. joint responses to what they regard
The apparent rift between Baker as a dollar crisis.
and Volcker is a source of concern But Treasury officials are expect-
in financial circles here and abroad. ed to seek more than an interest
"It's better when you have an rate cut from Japan as the price for
aura of cooperation-among gov- an agreement on stabilizing the
ernments and between the Treas- yen-dollar relationship.
ing cooperation on monet
ff
i
FOR SP '''
INVE
Come join 3
who carry N
? HUGECOA
(Minimun
? PERSONA
ErecutivE
? FIRST-CL
OWN floc
?AN INSI
offices c
Call today.
Qui(
MEMBER'
WASHINGT
Locally: 202
McLEAN, II_
In Mclean: -
Nationwide
BALTIMOF
In Baltimor
States allows the dollar to fall free-
ly, foreign investors will pull their
money out of Treasury securities.
The resulting shortage of funds for
financing the U.S. budget deficit
could drive interest rates higher.
Shigeru Tokunaga, vice president
of the foreign exchange department
of Fuji Bank Ltd., New York, said in
a telephone interview that "it will be
very difficult for Baker to say that
the decline of the dollar has gone far
enough until there is an actual de-
cline in the U.S. trade deficit."
Tokunaga said he believes that
the December trade deficit, to be
announced shortly, will be in the
$18 billion to $20 billion range, or
about the same as the $19 billion
deficit reported for November.
"If the Japanese and Germans
decided to lower interest rates,
then maybe Baker would be willing
to stabilize the dollar," said Kauf-
man. "That would gain some time.
But none of these ideas can stabilize
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
WEDNESDAY, JANUARY 21, 1987 F5
the dollar for an extended period'
Ultimately, the strength of the dol-i
lar depends on an improvement in
the trade deficit, and on the overall
health of the economy."
Whether the Federal Reserve
would join in a round of interest cuts
is an open question. Most market
analysts believe that the Fed would _
not like to reduce interest rates'
again unless there are visible signs of
a deterioration in the economy.
Although Miyazawa had publicly",
expressed interest in a Group of ,.
Five meeting to discuss the inter
national monetary situation, there'-
was little speculation yesterday
about an early meeting of that
group, which includes the finance"
ministers and central bank heads of','
the United States, West Germany,
Japan, France and England.
Government and private officials
said that it would be difficult to get-,_
any kind of meaningful agreement
at this time.
 Approved For Release 2011/09/09: CIA-RDP93TO1142ROOO1OO1OOOO1-1
rs, who
British
vith the
. in the
to have
00 mil-
y in his
sky &
~n~ut he
es-
made
I Burn-
Special to The New York Times
TOKYO, Jan. 16 - When the cur-
rency markets open here on Monday,
there will be much concern about
whether the yen will continue to soar
against the dollar.
A stronger yen means slower eco-
nomic growth for Japan, and its rise
has been met here with universal con-
demnation. But Japan's trade surplus
al Af- with the United States still continues
aview to soar - reaching $51.5 billion in
id the 1986, a 30 percent leap above 1985.
in the The situation has left many search-
an in- ing"for answers. Government offi-
y con- cials are trying to figure out the im-
plications for an Oct. 31 agreement
nd her between Japanese Finance Minister
h their Kiichi Miyazawa and United States
though Treasury Secretary James A. Baker
mation 3d. Businessmen are looking at corpo-
rate profits, already driven down by
the strong yen. Traders are wonder-
ing whether the Bank of Japan will be
which forced to cut its basic interest rate.
by the And economists are calculating just
it such how much higher the yen might rise,
on had and just how much the further ap-
hedule preciation could hurt Japan.
kept, [The dollar opened at a record
nd the low of 151.45 yen in currency trad-
~uld be ing today, Jan. 19, in Tokyo, accord-
ing to Reuters.]
fund to The underlying issues are whether
the ac- a higher yen will help trim Japan's
t could trade surplus with the United States
ded up, and whether Tokyo will take the nec-
ngers. essary steps to insure that its econ-
he last omy acts as a spur to world growth.
dented, Just a few months ago, some Japa-
Soaring Yen
Stirs Concern
Continued on PC
Approved For Release 2011/09/09: CIA-RDP93TO1142ROOO1OO1OOOO1-1
 for comment, S?i't it Anac "nt Aicmnac Federal manager nt Parkin-t-.rtnr.,
its relations wi Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1 ably
Instruments, trying to replicate in thus a direct competitor. GCA's prod- the most important invention of our
Texas one of its successful Japanese ucts, he said, "may now have slipped generation," he said. "I'll do what-
plants, hastumed to Nikon steppers. far enough off the front edge of tech- ever it takes to make sure we keep
"What we are seeing these days is nology that saving them is a moot the technology for making it right
alliances between American and point." here."
Yen's Activity Watched
By Worried Japanese
Continued From First Business Page
nese thought that the time to worry
about these questions had passed, as
Mr. Miyazawa and Mr. Baker an-
nounced an agreement to stabilize ex-
change rates. The yen quickly
dropped to about the 160 level to the
dollar, and Japanese industry
breathed a collective sigh of relief.
Reports from Washington earlier this
month, however, indicated that the
United States would be happy to see
the dollar fall further.
The Japanese Government will ask
one of its most persuasive and well-
connected officials, Toyoo Gyoten, the
Vice Minister for International Af-
fairs, to bring up the matter when he
visits Washington to attend a private
seminar in the coming week.
'Agreement Very Ambiguous'
Although the surge of the yen jolted
Japan in recent days, to many Japa-
nese the American position came as
no surprise. Indeed, Japanese Gov-
ernment officials and economists
said they had placed little faith in the
durability of the Baker-Miyazawa .
agreement. "My feeling from the
start was that the agreement was
very ambiguous," one senior Finance
Ministry official said today.
"To have an impact on the mar-
ke't," he said, "it had to be presented
as a general agreement. But the
United States is in no position to inter-
vene jointly with Japan in view of the
situation on Capitol Hill."
Several economists, including
Kazuo Nukazawa, director of the In-
ternational Economic Department of
the Keidanren, Japan's leading big
business organization, said there was
little sense that the United States had
broken the agreement, merely that
Japan believed the agreement meant
the yen would not rise further, and the
United States saw the agreement as a
promise not to deliberately try to talk
the dollar down, as Mr. Baker had
done before the agreement.
Yusuke Kashiwagi, chairman of the
Bank of Tokyo, put it another way.
"This was' two people saying the
same thing, but dreaming different
dreams," he said.
American officials have said that
one reason they are not inclined to
stem the dollar's fall is because of
disappointment with Japan's efforts
to stimulate its economy, and there-
fore spur world economic growth.
Citing its need to trim its own huge
national debt, however, Japanese offi-
cials last month proposed a budget
with the smallest spending increase
in three decades. But Japanese
economists argue that a further yen
appreciation will instead slow
Japan's economy and prevent it from
helping world economic growth.
"This is the time when Japan and
West Germany are being encouraged
to expand their domestic economies
so that they can contribute to enhanc-
ing world trade and the world econ-
omy," said Susumu Taketomi, senior
economist of the Industrial Bank of
Japan. "Yen appreciation may be
detrimental to this effort."
Over the last year and a half, the
yen's quick rise - from 242 to the dol-
lar in September 1985 to the current
level of 153 - has thrown the Japa-
nese economy into a recession,
slashed corporate profits, prompted
companies to shift production over-
seas, and raised fears of increasing
unemployment.
Mr. Taketomi believes the econ-
omy will grow at just under 2 percent
this year and 2.2 percent in the fiscal
year that ends in March 1988. Most
private economists forecast growth
rates of between 2 and 3 percent this
fiscal year, in contrast to the Govern-
ment prediction of 3.5 percent.
Furthermore, economists fear that
a further rise in the yen could undo
United Prow International
Klichi Mlyazawa, the Finance
Minister of Japan.
the relatively strong growth in do-
mestic demand and consumer spend-
ing. Masahiko Koido, chief economist
of the Sumitomo Bank, said he ex-
pected consumer spending to grow in
this fiscal year by 3.7 percent, but
that it would slow in the next fiscal
year to 3 percent.
Mr. Koldo said he believes the yen
could break the psychological barrier
of 150 to the dollar, perhaps reaching
as high as 147 before dropping again.
Mr. Kashiwagi is confident that the
yen will not pass the 150 level, and
that it is already too high.
Much will depend on where the yen
goes in the coming days. Both Mr.
Miyazawa? and Satoshi Sumita, the
Bank of Japan's Governor, have :
pledged to continue intervening.
But other Japanese are rooting for
it to weaken.
"I hope it won't break the 150
level," Mr. Taketomi of the Industrial
Bank of Japan said. "But you have to
differentiate between what should be
and what will be."
`l
Approved For Release 2011/09/09: CIA-RDP93TO1142ROO0100100001-1
 ...,,wuo,Nuttt. iYlr. 1 rump raiinnfi in Las Vegas ana xe:.-
could not be rea Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
comment yester....,y. ... .... _e. d to
Under the agreement, Bally would ment and leisure businesses include
pay $60 million in cash and $90 mil- Continued on Page D6 Continued on Page D8
Germany Fear Falling Dollar
Bonn Uneasy
On Exports
Slide In Japan Fall in West Qernany
Yen to the dollar, at year-end. 3A0 Marks to the dollar, at year-end.
Special to The New York Times
BONN, Jan. 18 - A week before a
national election that it seems as-
sured of winning, Chancellor Helmut
Kohl's Government is growing deeply
anxious about the implications of a
rapidly sinking dollar and a rising
mark for West Germany's export-
based economy.
Although the leitmotif of his cam-
paign has been a cheery optimism -
coinciding with a powerful, inflation-
free economic upswing - Mr. Kohl
conceded last week that the dollar's
steep tumble demonstrated that
"world economic developments are
not without risks."
That was probably as far as the
Chancellor could go in public. But pri-
vately, senior officials are saying that
trans-Atlantic economic relations
and the specter of a trade war with a
protectionist-minded United States
could be the dominant foreign policy
issues of 1987.
"We're very, very concerned," one
top official said. "We've been receiv-
ing the message literally for months
now from Washington that we're
going to have a big trade problem.
And now there's an American Presi-
dent who's not going to be strong
enough to resist protectionist forces
in the Congress."
The precipitous downward spiral of
the dollar - last week it fell to 1.84
marks, its weakest level since Janu-
ary 1980, from 1.90 - has highlighted
the mark's status as the world's sec-
ond reserve currency. While an ad-
The New York Times/Jan. It 1147 Continued on P
Approved For Release 2011/09/09: CIA-RDP93TO 1142R000100100001-1
 ....nm aauars apiece. When
h Approved For Release 2011/09/09: CIA-RDP93TO1142ROO0100100001-1 yshipped
aps , ea. . _
- likens the decline o' t...caest>c chip-
producing technology to the loss of a
national capacity to build guns.
A. recent c.I.A. report, according to
? Elmer Corporation, aJ Connecticut- . barely more than 100.
based maker of instruments, and Ul- That same year the company lost
tratech Stepper, a division of the Gen- $94 million, and its accountants
eral Signal Corporation. And while issued a qualified report. Layoffs
Bonn Foresees Erosion
Of Markets for Exports
Continued From First Business Page
vantage to German exporters dealing
in mark-denominated goods, the cur-
rency's reserve status has long been
regarded as something of a burden,
particularly when the dollar is weak.
"On the one hand, it is a sign of the
strength of the economy," said Ute
Geipel, an economist at Citibank in.
Frankfurt. "But it brings a lot of
problems in terms of the autonomy of
German economic policies."
The Bundesbank, for example, now
finds itself under pressure to cut its
already low discount rate to make the
mark less attractive to currency
speculators - and to meet American
demands that West Germany adopt
more expansive policies. But with the
money supply growing much faster
than the bank would like - at 8 per-
cent rather than its preferred range
of 3 to 6 percent - the Bundesbank is
wary of unleashing further inflation-
ary pressures at home.
Finance Minister Gerhard Stolten-
berg is known to believe that it was
principally the plunging dollar - and
not the weakness of the franc because
of industrial unrest in France - that
precipitated the 3 percent revaluation
of the mark within the European
Monetary System a week ago.
Intervention Failed
Out of concern for the votes of Ger-
man farmers, the Government had
attempted to stave off a revaluation
before the Jan. 25 parliamentary
elections. But although the Govern-
ment spent $20 billion in the currency
markets to try to head off the revalu-
ation, investments in the mark and
the buffeting of the franc forced the
system to change.
Most economists seem to believe
that further adjustments in the sys-
tem will be necessary after the Ger-
man election, and some argue that
The system can only -function when
.,the dollar is relatively strong. Other-
wise, the buoyant second-reserve cur-
rency throws the E.M.S. out of whack.
Some of the sharpest concerns in
Bonn are that the declining dollar will
give American exporters an edge in
"dollar area" markets in Asia, the
Middle East and Latin America,
while at the same time eroding Ger-
man 'markets in Britain; where the
pound has weakened against the
mark, and in the United States.
Many German exporters appear to
have observed, so far, the time-tested
tactic of cutting prices to preserve
markets, but a free fall of the dollar
would put them under enormous
pressure. "As a nation that lives from
exports, we have to hold onto our
markets," said Ulrich Ramm of the
Commerzbank in Frankfurt.
Limited Imports From U.S.
American exports to West Ger-
many are fairly small and, despite
the weakening dollar, have not in-
creased. Figures available through
November show that West Germany
bought $13.3 billion in American prod-
ucts, compared with $15.8 billion for
the comparable period in 1985, when
the dollar was strong.
"There, are some top electronics
goods ?that are attractive," com-
mented a senior official in the Eco-
nomics Ministry, "but there is a wide-
spread view that the American ex-
port offer is not attractive enough to
switch to it, just because the dollar is
weak. It's a question of quality."
The Kohl Government has angered
the Reagan Administration by turn-
ing a deaf ear to insistent appeals to
assume the role of a locomotive for
the world economy. For Washington,
one important test will come when
the Bonn coalition - assuming it is
re-elected on Sunday - thrashes out
its approach to a planned tax-reduc-
tion package.
Otto Lambsdorff, an influential fig-
ure in Pe small Free Democratic
The Financial Times
Gerhard Stoltenberg, West Ger-
many's Finance Minister.
Party, the junior partner in Mr.
Kohl's coalition, has been demanding
that the Government advance to 1987
the second installment of a two-stage,
20 billion mark tax cut, now sched-
uled for early 1988. The first cut was
in 1986.
Mr. Lambsdorff, a former econom-
ics minister, voiced widely shared
concerns that the export-led boom
will taper off sharply this year - a
development that could be signifi-
cantly accelerated by the tumbling
dollar. But Mr. Stoltenberg, the most
powerful figure in the Government
after the Chancellor, has spurned that
view.
At a news conference last week,
Mr. Stoltenberg expressed skepti-
cism about reaching an accord with
the United States on halting the dol-
lar's slide. Coolly; the silver-haired
Finance Minister reiterated the Gov-
ernment's stiff-upper-lip credo:
"Steadiness and reliability distin-
guish our policies, not hectic reacting
to short-term economic variations.
And that's the way it should remain."
Approved For Release 2011/09/09: CIA-RDP93TO1142ROO0100100001-1
 ,, u a ice ful, conquerers of tugucu.ao,...., -- bu u1 V V aucJ n
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
l.Ciabcairr aria- aaaey aware wauaaeu ae ..c..a.,.a.. ?. ??..., positions
t Mujahideen at the start of one of the main val- key supply ba
Y
y in the south
!rations are not
ra
of year by the
ich affect areas
les
er
,rs which acts for
We had to turn
ecause we were al-
someone in the
suggested two oth-
n we realised that
sting for other peo-
?, the firm which is
Lrgyll Group, said
he same problem.
nior City of Lon-
brought together
r, a Bank of Eng-
I Mr James Gulliv-
Argyll Group, to
ness affair and a
tion by the Argyll
nt team. Mr Walk-
.cial who has been
.volved with the
Al.
.r touched on the
Guinness bid for
n Argyll's manage-
rstood that Mr Gul-
moment been per-
llow directors that
i Argyll's interests
role of Guinness
erable resentment
ip over the means
I bid for Distillers
iness. A senior ex-
iight: "It is not an
Ilion to bid for
.em to bid for us."
las
ley rout into ,.t mountainous in-
terior of t11e country.
Now, regular camel and mule car-
avans - carrying supplies which
By Stewart Fleming, US Editor,
In Washington
THE REAGAN Administration is
increasingly concerned about the
failure of West Germany and Japan
to act to boost their economic
growth and so improve US export
prospects and the chance of a signi-
ficant cut in the $170bn American
trade deficit.
A senior Reagan Administration
official, commenting on Friday on
the sharp decline in the dollar in re-
cent weeks, re-emphasised that it is
not the Administration's policy to
talk the dollar down.
But he repeated the Administra-
tion's position that unless West Ger-
many and Japan act to improve
their economic performance, the fi-
nancial markets will adjust the re-
lationships between the major cur-
rencies, implying that the dollar's
fall will play a bigger role in reduc-
in{ international trade imbalances.
If we do not get growth or im-
proved,US competitiveness, there
will be further currency adjust-
ments ... Time is passing, the cur-
rency markets will not wait for ever
before they make the adjustments,"
the official said.
He expressed frustration that
West Germany has never indicated
the least willingness to take (eco-
nomic) policy actions," adding that
West Germanys failure to meet its
Continued on Page 16
Reagan faces difficult choice for
Fed chairmanship, Page 2
Jhawar which
seize and hold
than 40 days h
Commander
a direct asset
tance groups
soon. They sti
ceasefire brew
bombardment.
Ch
act
ref
BY ROBERT
THE NEW lea
Communist P;
moved quickly
reassure the
the world that
vals in the cou
not mean the e(
reforms have b
The leadersi
created some i
no-US relation
State departm(
be going ahea(
George Shultz
State, to visit i
next month. .
The leadersh
an intense pov
reformers and
resulted in a k'.
bang, General
Communist Pay
Xiaoping's old,
dants, being f(
grace on Frid+
Zhao said t
essary for "st
expect contil
further purg
and academi4
Although 2
ing there is do b
for the politi
dom. and
strongly ae
The cha?
ing for in'
ed to deb
I1,---S7
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
..?
am
a Page 1
hit with Muja-
i usual, the So-
firing howitzer
Is at the Jahad-
ani Kandou for-
re had just left.
soldier, who had
.le a Mujahideen
a piece of flying
between our hill
t white mountain
Soviet howitzers
into position,
of Mujahideen
continued for
h Soviet shells
illtop and other
posts. No Soviet
isibly destroyed
i scored several
gets. The Muja-
casualties.
mander left the
rs of the resis-
> laid their Kal-
iritish .303 rifles
front of them.
nan (flat white
I.
r, Soviet jets
Aping flares to
to along which
:k to the base.
. by bombers
ath, staying at
I the Mujahid-
;iguak anti-air-
pjahideen, who
.ind open fires,
mountainsides
iumerous deep
escape the at-
,ere reported.
oday that we
r range equip
then we could
Khost," said
But God is on
~ -- woo - ---5--"
with a policy of economic develop
ment.
In a radio 111tervift,'Mr Haughey
said a Fianna Fail Government
would not interfere with any prog-
ress being made under the Anglo-
Irish agreement which he said
would be an essential part of Anglo-
Irish relations.
US chides
trade partners
on growth
Continued from Page 1
1988 growth target has intensified
Washington's concerns that "an
(economic) slowdown in Germay
could come sooner in 1987 and be
worse" than the US currently fears.
He also said Washington was
"very disappointed" in the Japanese
Government's proposed budget for
1987, saying that, it was not in line
with what the US sees as the eco-
nomic policy understanding it
reached with Japan last year under
an accord to try and stabilise the
yen/dollar exchange rate. 'The Jap-
anese budget is uninteresting, not
stimulative. It strays from the US-
Japan agreement," the official said.
Asked if the group of five (G5)
major industrial countries were
preparing to meet to try and resolve
their economic policy dispute the
official said: "There is no present
plan to have a G5 meeting."
Since last summer, the Reagan
Administration has been arguing
that currency adjustments alone
(official code for a dollar devalua-
tion) are not a satisfactory mechan-
ism for reducing the US trade defi-
cit. It has urged that to avoid this,
America'ss industrial country trad-
ing partners (West Germany and
Japan in particular) should place
greater emphasis on economic
growth to improve US export pros-
pects. (The option of a US recession
as a mechanism for reducing the
US trade deficit is rejected on all
sides.)
U
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
 nand
pI
juite con-
urea, since
ctended to
got just air
irk for the
e heels of
ambers of
ttheAm-
d positive
s s p
ran -
krea until
oduced.
on some-
rmally in-
"a DOT
sportation
ointed out
)OT rules
eats which
:e by the
g1neee kn-
,3 "a 7
10 MR nAFs
DE A
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001 1
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
urmoil in (ur rency Markets
May Delay Easier Fed Policy
By RIPLEY WATSON Jr.
Journal of Commerce Staff
NEW YORK - Turmoil in the
foreign exchange market may de-
lay an easing of Federal Reserve
monetary policy and expected de-
clines in interest rates, credit
market analysts say.
But they believe the delay will
be only temporary - unless the
drop in the dollar extends much
further and thus lessons foreign
demand for dollar-denominated
securities.
"The market has been domi-
nated by the dollar beck of the
confused picture over Fed poli-
cy," said Robert Schwa, senior
financial economist for. Merrill
Lynch & Co. "As a reafR,: the. Fed
may not be as quick to 'Poll the
triMr? But air the' fir t guar-
tar, ws sal sup. _,**1*
CREDIT
OUTLOOK
"The decline in the dollar post-
poned the Fed's timetable,"
agreed Philip Braverman, chief
economist for Irving Securities
Inc., a subsidiary of Irving Trust
Co. "But a weak economy will
offset a weak dollar. The latter
factor has a potential for infla-
tion, but not if world demand for
goods is weak."
The long-term bond market
ppea as
red to the support analysts' Treasury 7% %
30-year bend rallied in midweek
and closed the week at 103t' to
yield 7.33%, off only % point from
a week earlier.
The beitwetbW hews r icon.
despite a warning from Federal
Reserve Board Governor Wayne
Angell that a further decline in
the dollar, if accompanied by ris-
ing domestic prices in this coun-
try, "undoubtedly would alter the
price landscape and would be a
monetary policy consideration."
The current year will be
shaped by foreign exchange rates,
oil prices, prospects for foreign
growth and protectionist trade
pressures, Mr. Angell said.
Taking note of the Fed gover-
nor's remarks, Irving's Mr. Brav-
erman inferred from them that
the dollar has not been a factor in
Fed policy up to now.
. Elliott Plat, senior vice presi-
dent and, director of government
bond research for-Donaldson, Luf-
kin & Jenrette, at least
one difooq dt rate MIN 1967
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
TRADEIGENERAL NEWS
Turmoil Could Delay
Easier Fed Policy
added that "it may not be that far
off, despite the recent turmoil in
the foreign exchange markets."
A combination of factors also
was cited by Albert M. Wojnilow-
er, managing director and senior
advisor of First Boston Corp. The
Fed can't help but worry about
"the combination of a falling dol-
lar, large budget and trade defi-
cits, higher oil prices, rapid mon-
etary expansion and government
disarray," he said.
As the greater evil of recession
looms up from time to time, he
continued, "the Fed will ease, al-
though reluctantly and preferably
in international company." One or
more discount rate reductions are
likely between now and the au-
tumn, he said, with a decline of
0.75% or so in long and short in-
terest rates.
Samuel D. Kahan, chief finan-
cial economist of Kleinwrot Ben-
son Government Securities Inc.,
took a different tack, suggesting
that depreciation of the dollar
will contribute to a widening
yield curve.
'Central bankers have indicat-
ed their willingness to intervene
in support of the dollar," he said.
"The dollar balances accumulated
via intervention 'are usually in-
vested in short-term Treasury
bills. These actions will tend to
keep short-term market yields
low."
A more bearish view was that
of Lyle Gramley, now the chief
economist of the Mortgage Bank-
ers Association and a former Fed
governor. He saw a 50-50 chance
for further Fed easing this year
but said the odds for a Fed rate
cut decreased "each day that the
dollar continues to fall."
Irving's Mr. Braverman insist-
ed, however, that "the Fed will
ease somewhere down the road,
especially if others ease first."
The market is hoping, he added,
that "there is some truth in re-
ports coming out of Tokyo that
Japan is considering a discount
rate cut or some other measures
to boost its economy."
In the same vein, Merrill's Mr.
Schwartz pointed out that a West
German rate cut after the nation-
al elections there next Sunday
"would help the Fed."
Li addition, he predicted eco-
nomic statistics for January will
be weak.
"The strong fourth quarter
numbers 'borrowed' some of their
strength from the) first quarter,"
he continued.
Approved For Release 2011/09/09: CIA-RDP93TO1142ROO0100100001-1
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
(onrnaE of mmern
sub fammtreful
lS
ig
yen
Likely
islation
resting
HORNE
aff
islation re-
nd alcohol
in crews is
i the wake
that killed
. from the
tment of a
ply.
, R-Mo., is
legislation
nspections
TUESDAY, JANUARY 20, 1987 160TH YEAR
dollar Leveling Out
But Still Vulnerable
B HOROWITZ America. The dollar might bad" and that December's U.S.
a commwo. sun strengthen on news about trade trade deficit will continue to be a
NEW YORK - The U.S. dollar legislation that would restrict im- problem.
is expected to remain stable ports, be said, but the dollar is The U.S. trade deficit reached
against the other major Curren- still vulnerable against the mark a record $19.2 billion in Novem-
cies this week as the foreign ex- and the yen. ber. While some analysts say De-
change market recovers after last "There are real strong funda- cember's trade deficit will be
week's three-day plunge. mental reasons for the dollar to somewhat lower because of user
But the outlook for the dollar go down," he said, referring to the fees on imports, Mr. Jonathan
over the next few weeks is bear- huge U.S. budget and trade defi- doubted that assessment.
ish - the fundamental value of cits. "The solution is going to Peter Ellsworth, vice president
the dollar is still high and the come from the political arena." of foreign exchange at Kidder,
market expects lower U.S. inter- Steve Jonathan, a vice presi- Peabody & Co., an investment
est rates, traders and economists dent on the corporate foreign ex- bank, said the foreign exchange
say change desk at Citibank N.A. said market is concerned about "am-
"In the long term, we'll see a the likelihood the dollar would biguous statements" from the
loss of confidence in the dollar," reach new lows over the next few White House about the value of
said Howard Kurz, chief foreign weeks is good given that "first the dollar. go 0"~
e anaa tradar at Rsn4 ZPWIAG73A
1,000 Approved For Release 2011/09/09: CIA-RDP93T01142R000100100001-1
 ti
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
!US,- Curreiicy ne mains v uinera le
D
The dollar's decline last week was
precipitated when administration of-
ficials were quoted as saying the
? White House wants a weaker dollar
to help reduce the huge U.S. trade
deficit. The dollar then lost more
than 4% of its value against the
mark and over 3% of its value
against the yen.
Is the White House not con-
cerned because it feels that it can
counter protectionist calls by lower-
ing the dollar or not concerned be-
cause it intends to intervene? I think
that's a concern in the market right
now," Mr, Ellsworth said.
The market is looking for a fur-
ther strengthening of the Japanese
yen against the dollar, he comment-
ed. "There's a growing feeling the
yen is undervalued at 150 yen to the
dollar," he said.
Japanese and West German fi-
nance officials are scheduled to be in
Washington for a seminar Wednes-
day and are expected to discuss with
U.S. officials their concern about the
appreciation of their currencies.
Gerhard Stoltenberg, West Ger-
man finance minister, Satoshi Sumi-
ta, Bank of Japan governor, and
Paul Volcker, Federal Reserve
Board chairman, will reportedly be
in Washington for this seminar, ac-
cording to Knight Ridder Financial.
Mr. Ellsworth predicted the dol-
lar this year will fall by about.6% to
Industrial production
up slightly in December
130
129
128
127
126
125
124
123
122
121
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1986
SOURCE: Federal Reserve
say anything," he said, referring to
sensitivity from U.S. officials about
commenting before West Germany's
national elections on Jan. 25.
While currency movements have
generally left the British pound
stronger against the dollar over the
last few weeks, it has lost ground
against the mark and the yen.
"Obviously, there's great vulnera-
bility in sterling around the political
front," Mr. Hargreaves said, citing
weakness in the U.K. economy, such
as high unemployment and fears
about inflation. "If the fig leaf um-
brella is taken away, they'll be quite
exposed," he said, referring to the
pound's vulnerability.
The recent realignment in the Eu-
ropean Monetary System that result-
ed in an upward revaluation of the
mark, the Dutch gilder, and the Bel-
gian and Luxembourg francs was in
response to the sharp drop in the
value of the French franc. The de-
clining dollar and French political
turmoil forced the mark higher and
the. franc lower.
A re-intensification of labor trou-
bles in France and a weakening of
Prime Mipister Jacques Chirac's
popularity could result in more
strains on the French franc, Mr.
Hargreaves said.
Mr. Chirac has bad difficulties
with the labor unions, coping with
national strikes by train engineers
and electric workers in the past
month.
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
10% against the West German mark
and the yen.
This week the dollar will trade in
the range of 1.81 to 1.88 deutsche
marks and 151 to 155 yen, Mr. Kurz
of Bank of America predicted.
"No one will commit large
amounts next week. After the blow-
out on Wednesday (last week), it will
take a while for the dollar to recov-
er. We will see a slightly higher high
and a slightly lower low," Mr. Kurz
said.
The market will be looking for
statements from Mr. Volcker and
James Baker III, treasury secretary,
about the value of the dollar, said
Derek Hargreaves, an economist at
the Morgan Guaranty Trust Co.
However, "No one's going to want to
Output Gain Stirs
Cheers, Warnings
By JOHN BOYD
Journal of Commerce Staff
WASHINGTON - Strong industrial production fig-
ures for December drew cheers and notes of caution as
analysts continued to disagree over economic prospects.
. To some, the report supported the view of a healthy
fourth-quarter economy that would spill over to.boost the
first quarter as well.
The output gains also suggest trade-related im-
provements, analysts said.
Others warned, again, that strength late in -1986 was
fueled by expiring tax benefits, and may not give much
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
JOURNAL TUESDAY;'JANUARY 20, 1987
ND
EER
eras a
take
he right
achni-
35236
Inc.
$129
n tax.
Falling Greenback: Dollar's Plunge Raises Doubts
About Its Impact, Divides Policy Makers in Capital
Continued From First Page
facturers. Tokyo worries that the strong
yen will raise prices of Japanese goods in
the U.S. and shrink markets for Japanese
products around the world. South Korea,
Taiwan and other industrializing countries
whose currencies are tied closely to the
dollar are finding it easier to undercut Jap-
anese competitors in world markets.
Some U.S. economists and policy
makers-notably Fed Chairman Volcker-
also are uneasy about further devaluation.
Mr. Volcker is afraid that too much down-
ward pressure will risk pushing the dollar
into a precipitous decline like that of 1976-
80-rekindling domestic inflation, making
it difficult for the U.S. to attract needed
funds from foreigners and eventually
plunging the country into a recession.
Fed strategists also worry that too
large a dollar decline could limit their op-
tions on monetary policy. Fed Gov. Wayne
Angell warned last week that if the Fed
had to defend the dollar, it might not be
able to relax monetary policy enough to
offset any further weakening of the econ-
omy. The dollar "would become a mone-
tary-policy consideration," he says.
Mr. Volcker also has expressed doubts
that continued devaluation alone would do
much to restore U.S. competitiveness over
the long term. Instead, he argues, the U.S.
should be attacking the more fundamental
cause of the trade problem-that the U.S.
is living beyond its earnings. Mr. Volcker
wants the administration to adopt policies
designed to damp consumption and spur
savings and investment-by reducing the
budget deficit and increasing incentives for
manufacturers, in particular, to invest in
new equipment and technology.
Surge in Output Needed
The Fed chief says the U.S., to export
enough to wipe out its trade deficit, will
have to increase manufacturing output by
30% over the next five years. "We are not
investing in industry at a rate to support
that growth," he warns. Indeed, if the fall-
ing dollar discourages foreigners from
buying U.S. Treasury securities, interest
rates would rise and depress business in-
vestment.
In short, Mr. Volcker worries that the
administration is failing to act to correct
domestic economic imbalances while wait-
ing for the falling dollar to make American
business more competitive and to reduce
the trade imbalance. Both Mr. Volcker and
Mr. Baker would prefer to see Japan and
Germany stimulate their economies, but
Mr. Volcker believes that the U.S. also
must change its policies to achieve a better
trade balance.
The administration's benign neglect of
the dollar has convinced traders that the
U.S. wants the greenback to fall further.
"The markets already are bearish on the
dollar," says David Hale, Kemper Finan-
cial Services' chief economist. He and
most other analysts expect the downward
momentum to continue.
One reason is that traders have lost
ig of
ip of
Ger-
:ula-
Nest
ling
inis-
offi-
pos-
but
de-
,er-
e in
:ur-
ier-
mi-
t of
ink
ss"
lity
on
)ti-
've
.00
~w
r'y
A-
3.5
confidence that the U.S., Germany and Ja-
pan can work out a way to reduce their
huge trade imbalances. Looming along
with the $170 billion U.S. trade deficit are a
German surplus of $56 billion and a Japa-
nese surplus of $86 billion. Together, they
have replaced the global debt problem as
the main threat to the world economy.
"These imbalances simply are unsus-
tainable," says Robert Hormats, a former
State Department official now with Gold-
man, Sachs & Co. "Unless they're re-
duced-and quickly-a recession seems in-
evitable."
Related Worries
There also are related worries: Con-
gress isn't acting as firmly as the markets
would like to reduce the federal budget
deficit. Protectionist pressures are intensi-
fying on Capitol Hill. There is concern over
reports that the administration is consider-
ing replacing Mr. Volcker as the Fed
chairman. Interest-rate differentials be-
tween the U.S. and its trading partners are
narrowing. And, in the background, there
is uneasiness about the potential weaken-
ing of the administration by the Iran-Con-
tra scandal.
Because the dollar's sharp decline over
the past two years has done little to nar-
row the trade deficit, many analysts, both
in and outside the Reagan administration,
think that the dollar must go lowet. Rim-
mer de Vries, the chief international econ-
omist at Morgan Guaranty Trust Co., says,
"The dollar has to decline further, and the
earlier the better. It's the only way we can
hope for a quick turnaround."
Robert Lawrence, a Brookings Institu-
tion economist, agrees. A further decline in
the dollar of about 10% to 15% will "put
the United States on a new path, where
we'll be able to see some improvement in
the overall trade situation," he says.
"That's far different from the point at
which we've been before."
But Mr. Lawrence acknowledges the
risks in a lower dollar. He notes that the
last major decline-an 18% trade-weighted
drop in the dollar between 1976 and 1980-
added several percentage points to the na-
tion's inflation rate. .
Prior U.S. Experience
A decade ago, the fast-skidding dollar
added visibly to foreign perceptions .that
the U.S. was on the decline. In the end,
Washington was forced to intervene heav-
ily in the foreign-exchange markets to halt
the dollar's slide?`Even that didn't work. It
was only the tight-money policy that the
Fed launched in 1979-and President Rea-
gan's early-1980s moves to restore confi-
dence in the U.S.-that reversed the dol-
lar's decline. The cost: record-high inter-
est rates and a sharp recession.
Britain's long series of devaluations in
the 1970s and early 1980s proved no more
effective. Although the currency changes
helped in the short run, they lulled the
country Into believing that British competi-
tiveness was being restored without any
need for belt-tightening at home. Thus, la-
bor costs continued to soar, inflation raged
unchecked, and the cheapened currency
left British industry unable to afford to ex-
pand into foreign markets. In short, the
country remains as uncompetitive as it
was before. Meanwhile, Britons have be-
come poorer and can't buy"as much of
what the rest of the world produces.
The Reagan team hasn't always viewed
a declining dollar as a good thing. During
its first 4% years, the administration was
delighted that the dollar was rising
sharply; President Reagan even boasted
that it reflected world-wide confidence in
the U.S. But 16 months ago, Treasury Sec-
retary Baker, worried by growing protec-
tionist pressures, engineered a five-country
attack to speed the U.S. currency's de-
cline. Ever since then, the U.S. has wanted
the dollar to waft gradually down. At the
same time, the U.S. has been leaning on
Germany and Japan to stimulate their
economies so they will import more.
Group Exercises Options
For Borg-Warner Shares
The U.S. has hinted several times that
it might be willing to trade concessions on
the exchange-rate side-perhaps leading to
some sort of joint Big Three statement on
what exchange-rate levels are appropriate
-if Germany and Japan would agree to
stimulate demand at home. But so far,
Bonn has refused.
Partly to prod the Germans into such a
deal, the administration experimented last
October with a bilateral "accord" with Ja-
pan, agreeing to give its blessing to pre-
vailing exchange-rate levels if Japan cut
its discount rate and launched a tax-revi-
sion program. Although Japan technically
kept the bargain, its new budget package
all but vitiated any new stimulus from tax
revision. Yesterday, the yen broke through
the top of the range, and the U.S. didn't
move to' Intervene.
Mr. Baker still hopes to get a U.S.-Ger-
man-Japanese accord sometime this year.
Meanwhile, the administration has been
willing to let the dollar fall.
Dissolution of Fi l n a
Oper'
Ap
havE
hold(
E
fund
on I
tors
and
ain
Boe
PL(
whi
facI
dan
mei
con
latE
Ott.
Bo(
Jet
cia
siti
ber
Na
ma
reI
da,
pa:
the
to I
am
me
ME
to i
as
reI
abi
Bo
col
pa
los
wil
ter
By a WALL STREET JOURNAL Staff Reporter
MINNEAPOLIS-A erouD led by in
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
A1&1'UESDAY, JANUARY 20, 1987 THE WASHINGTON F
Tbe
CONCERNING THE DOLLAR, the week got gress. But it didn't work in Britain and it wouldn't
off. to a dismaying start. The exchange rate work here. After further runs on the
fell sharply again yesterday on the world's Britain turned to devaluation. Here in Washing,
matlts.' While the dollar's present value against ton, there's a common impression that devalua-
the" panese yen and the German mark is not tion creates jobs-particularly sigl f1at#tly out of he with th
d
ll
'
t
a
e
o
ar
s actual turing industris, most of whie
her
export or
purghasiug value, the. question is whether the have to compete with imports. But while the
three gdvernments will, or can, control this ex- British pound fell from $2.80 to the dollar 20
tre gly.Kapid fall.
ear
a
t
$1
y
s
go
o
.52 yesterday, employment in
1 . Reagan administration was right to wel- British
uf
u
man
act
ring has dropped by one third.
come-and encourage this decline as long as the The United States has got itself into a bad spot.
dollar=was overpriced. But that's no longer the No government has reliable control over the
case, and yet the administration continues to push exchange rates. The flows of private money are
it lower.! It is trying to stave off protectionist too large for that. The dollar's descent over the
legislation in Congress, and it's counting on a low past two years has been gradual and steady
dolls 'to' help American exports and hold down because most foreign investors thought that it
impos,;That's exactly what will happen-in the would be limited . ' But now they have begun to
short run. fear that the Americans, like the British earlier,
But the relief that devaluation promises is very are resorting to devaluation to avoid unpopular
temporary. Americans need to keep in mind the internal decisions-beginning, in the American
British experience over the past quarter of a case, with serious and sustained reduction of the
century. The point of the story is that when a federal budget deficit. If foreign investors become
country's internal economy is out of balance and wary of the dollar, it could fall fast and far. The
performing poorly, dropping the exchange rate result, far from a' renaissance in manufacturing
isn't a cure. Successive British governments tried industry, would be rising inflation, high interest
to spend, more on their people than their slow- rates and probably a recession. Whether that
moving economy could afford, and the conse- happens now depends- mainly on the world's
quence was a series of foreign exchange crises. In investors and money managers, as they decide
the mid-1960s a Labor government tried to hold whether it's wise to send more of the world's
off imports with a 15 percent tax on them-an wealth here-or instead, perhapsi to send-it to
idea that seems to be popular currently in Con- Frankfurt.
Most
AN INDEPENDENT NEWSPAPER
The Falling Dollar
fit
v `
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
(I ]-I- / 7' X/-
ruin
-teepe
)ected
th Quarter
tear; Firm
Ad Decline
URROLL
STREET JOURNAL
ational Business
I fourth-quarter
hat were even
d and predicted
e first quarter.
among the na-
panies, the full-
orst since 1982
ice the Depres-
nt has had two
earnings.
onomic factors
rid moderating
foreign coun-
Oshness outside
and late in the
Ong support IBM
nom those opera-
3ut IBM also had
could have ad-
rere disappointing
uter lines, which
being incompati-
-re flat in personal
.tors have managed
ces.
arter profit tumbled
$2.28 a share, from
er earnings of $2.68
ire. Revenue slipped
from $17.16 billion.
iings plunged 27% to
a share, from $6.56
ire, in 1985. Revenue
?5 billion from $50.06
hort of analysts' lat-
-arnings would total
it the quarter and
Lr, even though an-
imates by several
year progressed.
Juncement, IBM's
23.125 a share, in
ie New York Stock
ilso wiped out an
in the Dow Jones
he average eventu-
er another gain.
)ftness came out-
the dollar's weak-
-oblems. Revenue
increased 20% to
but would have
37 billion gain in
lates it got from
illar. Meanwhile,
3.7% to $3.19 bil-
bled without the
tributable to the
irges related to
fourth quarter.
a $250 million
ter related to
program. But
otal charge at
:er taxes. Bob
ex Research,
rite-down re-
.ventory that
eeculates that
.I and the rest
it reduced its
iin 1986, 1,000
end that it cut
Cher property
it will reduce
Jrce by a fur-
1987-largely
it program-
)nal steps to
s, an IBM
are unlikely
gs will ap-
er of 1986."
Bent comes
986 quarter
65 a share.
moves and
igs signifi-
viewed as
d to have
Some, for
rnings as
usually
vs signs
nI
r Rebounds Sharply on Speculation
out Baker-Miyazawa Meeting Today
0
By CHARLES W. STEVENS
And THOMAS F. O'BoYLE
Staff Reporters of THE WALL STREET JOURNAL
Speculation about today's hastily ar-
ranged meeting between U.S. Treasury
Secretary James Baker and Japanese Fi-
nance Minister Kiichi Miyazawa sparked a
sharp rebound in the dollar yesterday.
Expectations about the meeting's out-
come, coupled with speculation about pos-
CURRENCY RATES
New York Nome Mkt. London
Tues. Tues. Mon.
(In U.S. dollars)
British pound .......... 1.5175 1.5200 1.5310
Canadian dollar 0.7363 0.7363 0.7362
(In foreign units to U.S. dollar)
French franc .......... 6.1453 6.1350 6.0625
Japanese yen ..........152.68 152.23 150.80
Swiss franc ............. 1.5438 1.5393 1.5148
West German mark 1.8375 1.8356 1.8080
Based on average of late buying and selling rates.
Mome markets: London, Toronto, Paris, Tokyo, Zu-
rich and Frankfurt.
New York trading was idle Monday for the Martin Lu-
ther King holiday.
GOLD PRICES
(In U.S. dollars per troy ounce)
Comex Landon PM London AM Comex
Tues. Tues. Tues. Mon.
407.40 115.75 417.10 12240
Comex based on settlement price for gold delivery in
the nearest month on Commodity Exchange in New
York.
London based on morning and afternoon price fixings
of five malor dealers.
sible Japanese and West German interest-
rate cuts and Federal Reserve Board
Chairman Paul Volcker's testimony before
the Senate Banking Committee today,
prompted many traders to take profits by
buying back dollars sold earlier at higher
levels, halting the U.S. currency's most re-
cent plunge.
"The Baker-Miyazawa meeting cer-
tainly has bullish implications" for the dol-
lar, said Frank Pusateri, senior corporate
trader at Bank of Boston. "The meeting,
plus Volcker's testimony and other factors,
was enough to turn the market around."
In late New York trading yesterday, the
dollar stood at 1.8375 West German marks,
up 1.6% from 1.8080 in late Monday trading
in London. (New York interbank trading
was idle Monday for the holiday marking
Martin Luther King Jr.'s birthday.) The
dollar also climbed 1.2% to 152.68 Japa-
nese yen, from 150.80, and 1.9% to 1.5438
Swiss francs, from 1.5148.
As the dollar rebounded, gold prices.
posted their steepest declines in 22 months
and other precious metals also plunged
(see story on page 36). Bond prices edged
higher in response to the dollar's rise
(page 35).
Baker-Miyazawa Meeting
The White House yesterday confirmed
that the subject of the Baker-Miyazawa
meeting primarily will be conditions in the
foreign-exchange market. Traders believe
Japan, which bought billions of dollars in
currency markets in recent days to slow a
steep slide in the dollar, will seek an
agreement with the U.S. on measures to
stabilize exchange rates. That possibility
prompted yesterday's dollar recovery.
But traders generally are doubtful that
the U.S. is prepared to do anything to dis-
courage the dollar's decline, which, prior
to yesterday's rebound, amounted to losses
of 5.8% against the mark and 4.8% against
the yen since the beginning of the year.
To head off further declines, "Baker
will have to say that he's satisfied with the
level of the dollar," said Joseph F. Teel, a
trader at Fidelity Bank, Philadelphia. "I
don't think he'll be able to say that be-
cause of political pressure in Congress."
Fall of 22 Months
The Reagan administration has allowed
the dollar to plummet over the past 22
months, and at times has actively encour-
aged the decline, to help reduce the huge
U.S. trade deficit and fight protectionist
pressure in Congress. A weaker dollar
makes U.S. products more competitive
abroad and imports more expensive for
Americans.
"Whatever pronouncement comes out of
the meeting, the market will jump all over
it," said Mr. Pusateri of Bank of Boston.
"In terms of reversing the dollar's decline,
we have to hear something specific." Re-
ferring to Mr. Baker, he said: "People are
looking for a statement that the dollar has
gone down far enough. If we don't see it in
black and white, we're going to assume the
administration wants the dollar to go
lower."
He added that a "vague" statement fol-
lowing today's meeting won't convince for-
eign-exchange traders that the U.S. wants
anything but a further depreciation of the
dollar.
Following a meeting between Messrs.
Baker and Miyazawa at the end of Octo-
ber, the two officials issued a joint state-
ment calling the dollar's level "broadly
consistent with the present underlying fun-
damentals," and noted their "willingness
to cooperate on exchange-rate issues." In
the wake of that meeting, the dollar stabi-
lized above 160 yen until the record $19.22
billion November U.S. trade deficit was an-
nounced in late December.
The October statement was accom-
panied by a Japanese discount-rate cut.
Yesterday, the dollar found support from
speculation that interest rates will be low-
ered by the Japanese and West German
central banks. Lower interest rates abroad
would tend to strengthen the dollar by
making dollar-denominated investments
relatively more attractive.
A Japanese newspaper reported yester-
day that the Bank of Japan is willing to cut
its discount rate if the U.S. promises to in-
tervene in currency markets to keep the
dollar and yen stable. And early Wednes-
day the Kyodo news service reported that
the rate reduction probably would be about
0.5 of a percentage point. The plan, which
reportedly will be proposed by Mr. Miya-
zawa today, would help Japan spur its
sluggish economy. The dollar's weakness
against the yen has hurt Japanese ex-
ports.
Although it is widely believed that the
Bundesbank is leaning toward an interest-
rate cut to stem the slide of the dollar,
some sources close to the German central
bank believe such a cut probably will be
postponed until after Sunday's national
election.
"I am convinced we will see a reduction
in rates," said one official, "but I am also
convinced they won't take action on Thurs-
day," when the policy-making central
bank council holds its biweekly meeting.
One government official, who asked to
remain anonymous, said he had been told
by a member of the Bundesbank's 18-mem-
ber council that "a majority" of the panel
seemed to now favor cutting the discount
and Lombard rates, but not before the
election. He suggested that the council
Please Turn to Page 8, Column 1
Reag,,
Kelle3
Source
By I
Staff Reporter of
WASHINGT(
tration has dec
Kelley, a Houstt
the Federal Re:
administration
The decision
Secretary Jame
for Mr. Kelley,
nouncement that
to nominate Mr.
a couple of day:
If confirmed '
will join four otl
the seven-memb
pointees have to
side view that t
credit because ii
right now.
Early last ye
Chairman Paul
lower interest i
since then, Mr.
the weak econor
monetary polio
Little could I
netary or regul:
would be likely
though he presu
to Mr. Baker's.
ally applauded I
How to
FINAN(
1-8O
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
 I uu wexuecratons. I ?C
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
on the touchy issue of acid rain, a snares vies
U.S.-Canadian environmental problem. He witt,
also feels aggrieved over U.S. protectionist whil,
Dollar Gains Sharply
Prior to the Meeting
Of Baker, Miyazawa
Continued From Page 3
may decide to lower interest rates but not
implement its decision until after the elec-
tion.
The discount rate is charged on short-
term borrowings by commercial banks
from the central bank. The Lombard rate
is similar, but traditionally is meant only
for last-resort financing and therefore is
higher. The Lombard rate is the rate at
which the Bundesbank provides overnight
liquidity to the banking system.
Several sources suggested that even
with the dollar's decline, the Bundesbank
may be hesitant to cut its key rates. In
particular, they said, cutting interest rates
is thought to be the central bank's last de-
fensive measure to fight a decline in the
dollar. Other stopgap measures, such as
allowing money-market rates to dip, could
be implemented before a formal rate cut,
they argued.
"They have to keep their powder dry,"
said one source. An interest-rate cut, he
said, could prove ineffective, and "then
they'd really be in a fix."
This source and others suggested that
the council may prefer to delay any action
on interest rates until it sees whether a
cooperative accord can be reached with
the U.S., such as the one discussed last Au-
gust. Bundesbank President Karl Otto
Poehl offered then to cut interest rates if
the U.S. would take actions to stabilize the
dollar, sources said, but the possible com-
promise fell through when U.S. officials
failed to respond to the offer.
Meanwhile, Mr. Volcker's scheduled
testimony today before the Senate banking
panel worried some dollar bears because
the Fed chairman has often warned in past
trips to Capitol Hill of the possible negative
effects of an overly sharp decline in the
dollar's value. Mr. Volcker has noted that
a dollar freefall could revive inflation and
frighten away foreign investment needed
to fund the huge U.S. budget,, deficit.
On the Commodity Exchange in New
York yesterday, gold for current delivery
fell $15 an ounce to $407.40 in heavy trad-
ing. The estimated volume was 6.2 million
ounces.
tradt
belie
If r'ro 1 -4
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
- 4' F
jLLWA d 41
.OUNDUP
es Drop 25.8%
Vew Incentives
kers yesterday reported a 25.8 percent drop
e Feb. 11-20 period, fueled by a 38 percent
.y giant General Motors Corp.
s-GM, Ford Motor Co., Chrysler Corp.,
nerican Motors Corp., Volkswagen of Amer-
tufacturing U.S.A. and Toyota Motor Sales
bined sales of 188,510 cars in the United
period.
253,906 units sold in the year-ago period
,roducing cars domestically. Nissan's figures
ere estimated because its sales figures are
of buyer incentives, GM's sales fell 38 per-
I 7.9 percent decline and Chrysler a 14.8
go levels.
Irade Subsidiary
'sterday announced it has sold one of its sub-
Planning & Analysis Center Inc. (IPAC), to
gement team-chairman James R. Allen, a
al, and president Edward G. Sanders, who
f director of the Senate Foreign Relations
subsidiary to Sears World Trade (which in
of Sears, Roebuck & Co.), the Washington-
ed consulting services to U.S. and foreign
ell military equipment to the United States
declined to disclose the terms of the sale,
overall dismantling of the trade subsidiary.
sses, Sears announced late last year that it
ry, selling pieces to interested parties. Sev-
business have already been sold, including
fany, Hagemeyer N.V., which Sears World
r earlier. Hagemeyer bought its stock back
tber.
2-Year Treasury Notes
-easury notes rose in yesterday's auction to
October. The average yield was 6.32 per-
!nt at the last auction on Jan. 21.
e since two-year notes averaged 6.39 per-
:es will carry a coupon interest rate of 6.25
DO in face value selling for $9,987.10.
on in notes were sold out of bids totalling
hris Talks
Restored
Cooperation
Step Seen as Crucial
For Monetary System
By Hobart Rowen
Washington Post Staff Writer
PARIS-At the end of the
"Group of Six" financial ministers
meeting here, British Chancellor of
the Exchequer Nigel Lawson, as-
sessing their firm-but still pri-
vate-determination to intervene
in exchange markets to prevent a
further fall in the dollar, said:
"Those who would wish to spec-
ulate would have better luck with
horses."
Lawson was suggesting that the
finance ministers and the central
NEWS
ANALYSIS
bankers of the six na-
tions-the United
States, Japan, West
Germany, Britain, France and Can-
ada-had agreed to commit substan-
tial resources to keep the dollar sta-
ble. Treasury Secretary James A.
Baker III preferred to keep the mar-
ket guessing about intervention. "We
never talk about that," he said at a
concluding press conference.
Ultimately, the market will test
the extent of the ministers' commit-
ment to intervention, and only then
will it be evident whether Lawson
was indulging in rhetorical excess.
But no matter how that turns out,
the meeting here was an important
and highly necessary event, restor-
ing what had been a seriously frac-
tured process of international eco-
nomic cooperation.
Baker and Deputy Treasury Sec-
retary Richard Darman like to char-
acterize their efforts to make prog-
See DOLLAR, F5, Col. 3
PROJECTED EMPLOYMENT GR
JOBS IN MILLIONS
1^ 1985 (ACTUAL)
0 2010 (PROJECTED)
ARLINGTON &
ALEXANDRIA
MONTGOMERY
COUNTY
PRINCE GEORGE'S
COUNTY
WASHINGTON
METRO AREA-
"Includes Fairfax City and Falls Church
"Includes other outlying areas in addition to those listed above
Study Saes Area Will Gen
1.15 Million New Jobs by
By Sandra Sugawara
Washington Post Staff Writer
There will be 1.15 million addi-
tional jobs in the Washington met-
ropolitan area by the year 2010,
which will put it second only to the
Los Angeles-Long Beach area in
employment growth, according to a
survey released this week by the
National Planning Association.
Washington is expected to have
3.4 million jobs, bypassing Boston
and Philadelphia to become the
fourth-largest employment center
by 2010.
Overall, employment across the
country is expected to grow by 43
million between 1985 and 2010,
according to Nestor Terleckyj, vice
president of NPA, a
profit research orgai
service jobs are takii
percentage of the
said.
In Washington, th,
be in the private set
federal government
lyst, according to
predicted new jobs we
accounting and law fi
sociations and compai
areas such as inters
and high technology.
He said companies
locate in Washington I
federal agencies, emb,
icy-related institution:
firms will be attracte(
See EMPLOYMENT
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
 u Manages
dl Gain as
ding Slows
By Chet Currier
Associated Press
------------
YORK, Feb. 24-Stock
ged upward today in an
;sion marked by the slow-
; in more than two weeks.
ow Jones average of 30
rose 6.74 points to
..ecovering some of Mon-
Af 18.70 points.
on the New York Stock
vas 151.31 million shares,
170.45 million Monday
allest total since a 143.30
..e day on Feb. 9.
ssues were the market's
responding to signs that
nation of Petroleum Ex-
intries was having trou-
its agreement to bolster
ick.
11% to 783/8; Chevron 3/4
bil 1 to 415/8; Amoco 11/1
antic Richfield %s to 665/8,
tal Petroleum 3/8 to 311/4.
also said there was
nuing uneasiness over
ional debt situation, fol-
il's suspension of inter-
s on its commercial for-
:ks, which came under
19 pressure Monday,
in today's trading.
sown 33/4 Monday, lost
1 t/a to 54. But Chase
rose t/2 to 38%8, and
!w York was up 3/8 at
harmaceutical sector,
fed 41/8 to 1523/8 and
d up 4 to 1511/2, both
w highs. Analysts said
enefited from interest
I-reducing drugs made
d being developed by
fhich posted higher
pings from continuing
tined 3Y8 to 79f/8.
'cking jumped 41/8 to
)mpany agreed to a
ikeover by Newell Co.
vlotors led the active
33/4 on turnover of
i
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
,
Korea Cautious on Revaluation Plan
By Stuart Auerbach
Waslungton Post Staff Writer
As a result of a September 1985, meeting in New
York of finance ministers
f th
o
e United States, Japan,
South Korean Deputy Prime Minister Mahn Je Kim Britain, France and West Germany, the Japanese yen
said yesterday that his country's heavy debt burden will and West German mark have increased in value by 40
But
the force it to move slowly in responding to demands by Korea an peaiwan. have not currency c NICs such as
industrialized nations that it raise the value of its cur- Korea and Taiwan have not risen as much.
rency. "We hope that Secretary Baker understands the Ko-
In an interview here, Kim said he expects the exchange rean situation," said Kim. "Within limits, we will try to
rate issue to dominate his conversations Thursday with cooperate on the exchange rate."
Treasury Secretary James A. Baker III, who promised He said he will point out to Baker that Korea's situa-
Senate Finance Committee Chairman Lloyd Bentsen (D- tion is far different from Taiwan's, with the Korean for-
Tex.) last week that he would press Korea and Taiwan to eign debt of $45 billion equal to about half of its gross
allow the value of their currencies to rise. domestic product. Taiwan is the reverse, with assets that
"We are not refusing to cooperate on currency move- equal 50 percent of its gross domestic product.
ment," said Kim, who also is minister of economic plan- The Korean trade balance was boosted last year by
ning. "It's a matter more of reasonable treatment that what that nation calls the "three blessings"-lower oil
includes reasonable speed." prices, lower interest rates and exchange rate chan
At a meeting in Paris
six indust
i
l
h
,
ges
r
a
nations agreed t
at raised the value of the yen while leaving the Ko-
Sunday that newly industrialized countries (NICs) such rean currency nearly the same.
as South Korea and Taiwan should allow their curren- "We are not taking the extreme mercantilistic view
cies to increase in value, that more surpluses are better," said Kim, but he added
The Reagan administration is pressing for the ex- that Korea needs to generate trade surpluses to reduce
change rate changes to ease the $170 billion U.S. trade its debt burden.
deficit. A cheaper dollar lowers the price of American The South. Korean central bank announced yesterday
products overseas, making them more competitive in in- that the country had a current account surplus of $622
ternational markets while increasing the cost of imported million in January, with exports rising 35 percent and
goods in the United States.
imports steady.
United Press International,
SEATTLE, Feb. 24-Rainier
Bankcorporation, Washington's sec-
ond-largest banking company, has
agreed to be acquired by Security
Pacific Corp. of Los Angeles in a
stock swap deal valued at $1.15
billion, the companies said today.
Under terms of the agreement,
stockholders will receive 1
3 sha
.
res
of Security Pacific Corp. common
stock for each share of Rainier
stock. About 20.9 million Rainier
shares are outstanding.
The rate is equivalent to $52.30
per share, Rainier spokesman David
Jepson said.
The same 1.3-share exchange
rate would apply to Rainier shares
to be issued in the pendin
ac
i
g
qu
-
sition of United Bank, which is ex-
pected to close March 15, officials
said. United Bank is based i
ps
r
z.)
n jeopardy of losing their
n and Alfonse m nee /D 7.r
Tacoma. Wnch
.,, ,? v . ? .. ____
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1 Chat would
IRS Urged to Withdraw Proposal
On Lobbying by Charitable Groups
By Dale Russakoff
Waslsngtoo Post Staff Writer
House and Senate leaders of both
parties are pressuring the Internal
Revenue Service to withdraw its
proposed regulations on lobbying by
charitable groups, arguing that the
rules undermine the role Congress
created for those groups in the po-
litical process.
A letter drafted by Sens. Daniel
P. Moynihan (D-N.Y.) and Bob
Packwood (R-Ore.), and signed by
16 of the 20 members of the Senate
Finance Committee, which over-
sees the tax agency, called on IRS
Commissioner Lawrence B. Gibbs
to withdraw the rules and rewrite
them to "more clearly reflect the
Similar letters have been written
? ? ? WEDNESDAY, FEBRUARY 25
1987 F3
tive on issues ranging from nuclear
arms to infant mortality to spend up
to 5 percent of their money on
grass-roots lobbying or up to 20
percent on lobbying government
bodies.
The proposed regulations would
define as lobbying a range of activ-
ities that charitable groups do not
count now against their ceilings-
such as the full cost of direct-mail
fund raising if letters mention an
organization's views on legislation.
Another set of rules would count
as lobbying the costs of reports per-
taining to a piece of legislation if the
reports are distributed only "to per-
sons reasonably expected to share a
common view of the legislation."
Currently, the reports are not
th
ey meet a test of ob-
and circulated by House Govern- ' ject vity
ment Operations Committee Chair- The rules, if adopted, would be
man Jack Brooks (D-Tex.) and retroactive, thus putting numerous
Sens. Dennis DeConcini (D-A
grou
i
i
 Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1
aris Talks
Restored
Cooperation
DOLLAR, From F1
ress on the international monetary
front as an "incremental" one-
patient, laborious steps leading to a
reform of the international mone-
tary system. And in speeches, Bak-
er recites a long list of these steps,
starting with the Plaza Accord in
New York on Sept. 22, 1985, when
the finance ministers of the Group
of Five-the same nations except
for Canada-agreed to drive the
dollar down.
But the hard reality is that the
process initiated at the Plaza came
to an end early in 1986, after par-
tially coordinated interest rate re-
ductions among the Big Three na-
tions (the United States, Japan and
West Germany). Even worse, co-
WEDNESDAY, FEBRUARY 25, 1987 FS
dollar, then already down sharply counterproductive to the American
against the yen and mark. effort to reduce its trade deficit.
But nothing much changed Further, the West Germans, who
through the fall of 1986. At the had most strongly resisted Baker's
World Bank-International Monetary pressure for expansion, became less
Fund meeting in Washington in Oc- adamant as their economy slumped
tober, Baker's public pressure on in the last three months of 1986.
Germany and Japan to expand their "The Germans panicked with the
economies and lower interest rates rise of the D-mark," said a Euro-
increased the tension. Baker pean official. "They desperately
warned of rising protectionism and want stable rates."
spoke of a new mood of "isolation- And, in the view of C. Fred Berg-
ism" in the United States. i sten of the Institute of International
But Japan and Germany had their Economics in Washington, .
own domestic problems. The rising short-term interest rates began to
yen and mark were threatening re- rise. "That could have been [Fed i
cession and the loss of export mar- Chairman Paul A.] Volcker's way of
kets. What businessmen in Tokyo letting Baker know that if the dollar
and Bonn wanted was not a lower fell too much, he could still push up
dollar, but a stable one. short-term rates. And the last thing
Unsuccessful with a broader that Baker wants is higher interest
strategy, Baker shifted gears and rates," Bergsten said.
worked out a bilateral deal with Jap- So we have come full circle from
anese Finance Minister Kiichi Miya-
zawa. The accord, announced Oct. the Plaza, where the ministers said
31, 1986, was to stabilize the yen- that other currencies ought to ap-
dollar rate around levels then pre- preciate against the dollar. Will the
vailing. But a promised Japanese new G-6 goal-stability-work?
tax reform program turned out to Many experts think the new Ger-
be neutral instead of stimulative. man commitment to increase its $5
Finally, after weeks of false billion tax cut, probably to $8 bil-
starts and rumors and careful prep- lion, won't be enough to revive the
aration by deputies, the finance German economy. Private reports
ministers last week were able to say that first quarter gross domes-
call the meeting that took place tic product growth may be infinites-
here Saturday and Sunday. ' imal or even negative. There is
"They desperately needed to get skepticism that Japan will actually
together again," said a key official of put through an effective fiscal ex-
an international organization over pansion program, or that Baker can
the weekend. "If they couldn't reach deliver on a pledge to trim the U.S.
an accord, what would happen to the { budget deficit.
rest of the process? Next we have "It may restore exchange rate
the meetings of the International stability for a short period," said
Monetary Fund and World Bank, Bergsten. But he and some other
then the ministerial session of the economists fear that Baker with-
Organization for Economic Cooper- drew his demands for a cheaper
ation and Development, and finally dollar too soon. "A higher yen
the summit in Venice in June." wouldn't force Japan into a reces-
What were the changed conditions sion," Bergsten said, "but would
that led to a positive conclusion at really have pushed them into do-
this meeting, dubbed "Plaza Two" by mestic expansion."
Lawson because it is the "lineal de- Nonetheless, the key players-es-
scendant" of the Plaza session? pecially Washington and Bonn-have
First, Baker himself began to their act together again. And on the
worry that the dollar could drop so short-term agenda, they will have to
low as to be inflationary for the find a way of soothing ruffled feelings
United States and cause concern among the Italians, who declined to
among foreign investors. At the be accorded second-class status out-
same time, he was convinced that a side of the Group of Five. That may
sharply higher yen could cause a 'prove to be more difficult than sta-'
recession in Japan, which would be bilizing the dollar.
operation disintegrated into open
hostility at times.
In a speech at a private interna-
tional monetary conference in Bos-
ton in May 1986, Baker said therei i
were only three routes to correct-
ing the huge imbalances among the
United States, West Germany and
Japan: a recession here, greater
domestic expansion in Japan and
Germany or further '--I;naQ in tho
Approved For Release 2011/09/09: CIA-RDP93TO1142R000100100001-1