The U.S. dollar will strengthen "if markets behave rationally" in response to recent and prospective improvement in the world economic outlook, a high U.S. official said yesterday.
Under Secretary of Treasury Anthony Solomon told a news conference that there will be more uniform economic growth, less inflation, and a better balance in international accounts in 1979.
"I would assume that markets would be impressed with a reduction in the U.S. current account deficit, and a reduction in the Japanese surplus," Solomon said, "and that they will respond to that trend, if it continues, as I think it will."
In a briefing on matters coming before the joint meeting of the World Bank and International Monetary Fund meeting next week, Solomon noted that the administration faces a crucial test today when a bill providing U.S. appropriations for international economic commitments comes to the Senate floor.
This will decide the fate not only of U.S. participation in the so-called "Witteveen facility" of the IMF, but appropriations for the World Bank group organizations.
One of the key issues for next week's meeting, according to Assistant Treasury Secretary for International Affairs C. Fred Bergsten, "Is how the U.S. delivers on its pledges to (these) agencies." The Senate Appropriations bill provides $2.6 billion in all, up from last year's $1.9 billion, but below the White House request of $3.5 billion.
Despite his anticipation of future strength, Solomon said that the U.S. "remains deeply concerned about the dollar." He said the Administration is working on further steps to support the dollar, including a stronger anti-inflation program, an energy bill, and an export promotion policy.
He said that there had been no decisions made on the timing of further dollar-support steps, but that the export promotion steps might be the farthest along.
President Carter met yesterday with his chief economic advisers for the first detailed discussion of the anti-inflation program since prior to the Camp David summit on Mid-east problems.
Solomon agreed that U.S. price performance had been poor, and that the inflation control record had been better elsewhere in the world.
But on the encouraging side, he said that the U.S. current account deficit, running at a $20 billion annual rate for 1978, would be reduced next year, and that the West German and Japanese current account surpluses would begin to decline as a result of appreciation of the yen and D-mark, and because of the expansion programs put into effect by those countries.
Oil cartel surpluses "are no longer the dominant problem." he said, indicating they would drop to less than half of last year's $34 billion figure, and be further reduced in 1979.
"The German and Japanese surpluses won't vanish," Solomon said, "but the trends are in the right direction."
In specific questions coming up at eh IMF meeting, Solomon indicated that decisions on enlarging permanent IMF resources through a 7th general quota increase, and by a new allocation of Special Drawing Rights (SDRS) might be put off until the next meeting of the Interim Committee in the Spring of 1979.
SDRS are a special asset created by the IMF for the benefit of its members.
Agreement had been reached in principle at the April, 1978. Interim Committee meeting in Mexico City for a quota increase and broad support for a modest SDR increse. Probability is that there will be a 50 percent increase in quotas, and a new issue of 3 to 4 billion SDRs a year, for three years.
This might be agreed upon at the Interim Committee session on Saturday, just prior to the opening of the Joint session, or temporarily put off, as Solomon hinted.
Bergsten said that despite the recent good economic growth record of the LDCS, many issues remain, including U.S. participation in providing aid money. Other issues he cited were:
A major capital increase for the World Bank, to enable it to increase its lending by 5 percent in real terms each year. The U.S. "strongly supports a significant increase," Bergsten said - without putting a number on it. Bank President Robert S. McNamara wants to double the bank's capital.
The next replenishment of IDA - the International Development Association, the Bank's soft-loan affiliate. This needs to be accomplished by late 1979.