Top finance officials from the seven richest industrial countries endorsed a package of reforms Saturday designed to deal with Mexican-style economic crises while expressing satisfaction with the rebound in the value of the dollar.
The near default by Mexico earlier this year, the worst global financial crisis in a decade, was at center stage as the finance ministers and central bank presidents met for four hours at the U.S. Treasury for a review of world economic conditions.
The finance officials from the United States, Japan, Germany, Britain, France, Canada and Italy endorsed efforts under way to implement a $50 billion emergency bailout fund for countries in financial distress and a series of increased disclosure requirements to be followed by all countries so markets can be better informed.
On currency levels, the G-7 ministers welcomed the fact that the dollar, which had hit record lows against the Japanese yen and the German mark last spring, had enjoyed an “orderly reversal” and recouped all of those losses.
Going forward, the G-7 officials said they “would welcome a continuation of these trends consistent with underlying economic fundamentals” and pledged to continue cooperating closely in exchange markets.
The statement served as a strong signal to currency traders that the G-7 countries stand ready to continue intervening in currency markets as they have been doing since this summer to push the dollar’s value higher.
In commenting on the group’s currency discussion, U.S. Treasury Secretary Robert Rubin went out of his way to stress that no discord existed, unlike this spring when the United States, Japan and Germany were openly sniping at each other about who was to blame for the dollar’s sharp losses.
“I was very impressed that everyone came into the meeting looking at the issue in ways similar to our perspective,” Rubin told reporters. “The United States continues to believe that a strong dollar is very much in our economic interests.”
That view was echoed by other countries. “We are satisfied” with the position on exchange rates, said Japanese Finance Minister Masayoshi Takemura. “There are no differences among the G-7.”
It was expected that the group’s recommendation on the emergency bailout fund would be formally adopted today by the International Monetary Fund’s policy-setting interim committee. The fund would be administered through the IMF.
The proposal was the brainchild of the Clinton administration, which is seeking ways to avert the severe political headaches it faced in trying to help Mexico. In that crisis, it had to overcome stiff opposition in Congress and from U.S. allies to cobble together a package of $20 billion in U.S. loans and $17.8 billion from the IMF.
The administration believes the emergency bailout package is critical to ensure that the United States has partners in the next rescue effort. But they concede that at present they do not have commitments for the additional money to increase a current $28 billion line of credit at the IMF.
A second part of the reform package would be establishment of an early-warning system to detect problems before they erupt with the force that Mexico’s crisis hit last Dec. 20 when the country was forced to devalue its currency, the peso.