If the U.S. current account swings into a surplus of $10 billion next year, as forecast by the Treasury Department, it will be the result not of policy initiatives, but "a significant failure of U.S. policy" culminating in a recession, according to a Congressional Budget Office study released yesterday.
The current account measures the international balance for both merchandise trade and services transactions.
More than 80 percent of the spectacular improvement in the external U.S. position, the report says, came from a $23 billion reduction in the trade deficit from early 1978 to early 1979. And this gain is attributed to economic growth abroad and a decline in the dollar, which stimulated exports, and a reduction in the value and volume of oil imports in that period.
There were two factors cited for the more favorable oil picture: increased Alaskan production, and "OPEC's failure to maintain the real price of oil" last year. Neither of these factors, the report says, represents "a success" for American policy.
The report attempts to answer the question whether American industries have lost their competitive edge, but comes up with only murky answers. In the end, the reports says that recent strengthening of the U.S. trade position reflected increased price competitiveness. But some "loss in competitiveness" is associated with a stronger dollar since last November, it said.
"Concerted efforts are apparently being made to prevent any further decline in the dollar, and therefore, further sharp improvements in the U.S. competitive position seem unlikely," the report continued.
For the future, the report -- prepared for the subcommittee on trade of the House Ways and Means Committee -- forecast uncertainty, as a result of the prospect for additional oil price increases and the likelihood of recession here next year. It said that the current account surplus of $1.6 billion (annual rate) in the first quarter of this year had dissolved into deficits in the second and third quarters as a result of the 1979 oil price increases.
The Treasury's perspective on the current payments picture -- while using much the same data -- differs sharply from the critical tone of the CBO. In a speech on the subject last week in New York, Assistant Treasury Secretary C. Fred Bergsten said "the balance of payments adjustment process has operated almost precisely as the textbooks predict."
Bergsten argued that "the fundamental trends were moving in the right direction," prior to November 1978, when the United States acted to halt the rapid decline in the dollar. He ascribed the improved U.S. current account performance to the reduction in the trade deficit (despite the oil situation) and to a major growth in the surplus on services transactions.
The thrust of the CBO report is that these things happened without U.S. initiatives. Treasury officials cite fiscal and monetary restraint for having turned the tide before last November. The CBO also seems to assume that the dollar decline (halted in November, 1978) was more or less automatic.
The implication of Bergsten' speech, on the other hand, is that the decline of the dollar from an overvalued position in early 1978 was part of a healthy, planned "adjustment process" which has brought three leading world economies -- the U.S., West Germany, and Japan -- into better balance.
Bergsten did not repeat the $10 billion surplus forecast (offered by the Treasury last September), predicting only a "fairly substantial" surplus, assuming that oil prices do not go up "more than prices of other goods."
He predicted that Japan would swing into a $7 to $8 billion current account deficit this year, compared with a $16.5 billion surplus in 1978, and will continue in deficit in 1980. The German $9 billion surplus of 1978 has almost been eliminated for 1979, and Germany will register a small deficit next year, Bergsten said.
The CBO report said that the recent improvement in the U.S. current account position has been worth 2 percent of the gross national product ( $45 billion), creating between 400,000 and 500,000 jobs. But the decline of the dollar, which accounts for about one-third of the improvement, also cost anywhere between 1.1 and 1.7 per cent in the general price level, it said.