Treasury Secretary W. Michael Bluementhal said yesterday that the U.S. dollar "is in reasonably good shape" because the nation's record trade and current account (services plus trade) deficits would shrink despite the impact of oil pirce increases.
Nevertheless, the dollar fell again on most international money markets yesterday, primarily in anticipation of higher interest rates in West Germany that would tend to strengthen the mark.
Similar measures in Japan - in both countries, representing an effort to beat back inflation - have been widely rumored in Tokyo newspapers.
In testimony bfore the Joint Economic Committee, Blumenthal said - considered the best measure of a nation's international financial status - will continue to improve despite OPEC's price increases, although without them "We probably would be in much better shape."
He said that the current account deficit could shrink to a range of $4 to $6 billion this year, down from a record (revised) figure of $14 billion in 1978, and by 1980 could be in balance or in the black.
The trade deficit, he predicted, could be reduced from $34 billion in 1978 to $28 billion, despite the vast increase in the cost of imported oil. The major reason is that U.S. exports, notably agricultural commodities, are moving up even faster.
The U.S. oil bill, he said - re-stating a report first given by President Carter on his way home from the Tokyo summit - will zoom to $70 billion next year from $58 billion this year and $42 billion in 1978. And there are no assurances, Bluementhal said in response to a question by Sen. Lloyd Bentsen (D-Tex), chairman of the JEC, that OPEC won't again raise prices this year.
Blumenthal's statistical report also showed OPEC's current account bulging from $2 billion in 1978 to $40 billion in each of 1979 and 1980. The poor nations would see their deficits increase from $21 billion in 1978 to $29 billion in 1979 to $36 billion in 1980.
And in the rich industrial (OECD) world outside of the United States, a $22 billion surplus in 1978 (mostly Japan and Germany) would turn into a$16 billion deficit in each of 1979 and 1980. These figures obviously do not take into account any further prospective OPEC price increases.
In summing up the decisions made in Tokyo, Blumenthal said that the world must shift from "demand management" of the major economics to "supply management," so as to reduce inefficiences and imbalances.