British-drawn compromise today averted an open challenge in the Organization for Economic Cooperation and Development to the United States' refusal to intervene in foreign exchange markets as a way of stabilizing foreign currency relationships.
Treasury Secretary Donald T. Regan told reporters he was "very happy" with the communique issued today, after a two-day OECD ministerial meeting that effectively swept the issue of intervention under the rug.
Nonetheless, as Regan departed for Helsinki and a dinner meeting there tonight of the Group of Five major industrial countries--the United States, Britain, France, Japan and West Germany--he said that he would urge a study by the International Monetary Fund of the practical effects of exchange market intervention.
The American position, outlined here over the past two days, is that intervention to stabilize exchange rates, especially as practiced on a regular basis by the Carter administration, is ineffective.
The final OECD communique rejected draft language that would have called on the United States and other major countries "for improved cooperation to reduce fluctuations in exchange rates"--bureaucratic code language for intervention.
The Americans, who believe that the underlying economic conditions in the world govern exchange-rate fluctuations, accepted a British suggestion that the communique merely say that increased cooperation "with regard to convergence of macroeconomic policies" will reduce exchange-rate fluctuations.
Regan told a reporter that he had "fought hard" against the original language, and that he believes the compromise adopted in effect summarizes the American view that exchange rates reflect real economic conditions, and are not affected much by government intervention.
The communique, however, reflecting the Europeans' strong concern about high American interest rates, contains a pointed reference to interest rates as one of three "constraining factors" on economic growth. This summarizes the almost unanimous view of all except the United States that an excessively tight American monetary policy is crippling European recovery. The other two constraints mentioned are budget deficits and "market rigidities."
As expected, the economic outlook forecast by the OECD ministers closely followed the gloomy outlines of the analytical papers of the OECD secretariat, which were released earlier. The communique predicted only a minor economic resurgence, not enough to reduce the high levels of unemployment prevalent in the world, and especially in Europe.
The communique also said that high interest rates add to government deficits, a reference to the burdensome cost of financing the growing public-sector debt.
But Secretary Regan said he was greatly pleased with the overall result. "We came out very well when you consider the harsh criticism we had of the U.S. going into the meeting," he said. He noted that, despite the European nations' concern over a total of 31 million unemployed in the OECD area, the language in the communique dealing with unemployment is rather general, and doesn't call on any country for specific action.
A Danish initiative to cut unemployment by work-sharing--that is, calling on two persons to share one job--was rejected by the ministers.