A high Treasury official yesterday contradicted West Germany's economics minister's assertion that the United States will seek an agreement by leading industrial nations this weekend on a coordinated effort to push interest rates down.
"There simply is not going to be a coordinated interest-rate-reduction exercise," said the Treasury official, who spoke on condition that he not be identified.
West German Economics Minister Martin Bangemann, who met with Treasury Secretary James A. Baker III Tuesday, told reporters yesterday that Baker "is very much interested in having everybody lower interest rates," adding that Baker "wants that to be discussed and, if possible, decided" at a meeting of the Group of Five in London Saturday and Sunday. The finance ministers and central bankers of the G-5 -- the United States, West Germany, Japan, France and Britain -- will attend the session, which has been described here and in Europe as routine.
Bangemann stressed that West Germany is "in favor of the idea" of lowering interest rates, "but you have to use appropriate means to do that." If the effort is made "to lower interest rates artificially, you won't get a good result, because you can't fight against the market constantly," he said.
Bangemann said that whether a coordinated effort could succeed "depends on how far he [Baker] wants to go." It would require "an effective mechanism" that would have to include some assurance of lower budget deficits, especially in the United States, Bangemann warned.
His remarks prompted a strong rally in the bond markets on the assumption that interest rates were headed lower, while the U.S. dollar declined -- for the same reason -- in foreign exchange markets.
But Treasury officials said that Bangemann had misunderstood Baker. They said the secretary only had reminded Bangemann that the Japanese had proposed a coordinated effort to lower interest rates, and that Baker said he thought it should be discussed at the London G-5 meeting without endorsing the idea.
Fed spokesman Joseph Coyne said that "we have no knowledge of what Minister Bangemann is talking about."
A Treasury press aide quoted Baker as saying: "My meeting with Minister Bangemann was a private meeting, and I'll have no comment on his remarks. It's not our policy to discuss in advance the positions we may or may not take in private G-5 meetings."
In an interview, another senior Treasury official, talking on a background basis, said that an effort to coordinate interest-rate policy "would have no credibility." In any event, he noted that the question of American policy on interest rates was one within the purview of the Federal Reserve System, rather than the Treasury.
Japanese Prime Minister Yasuhiro Nakasone recently called for joint interest rate reductions in an effort to stimulate further world economic recovery, and indicated an intention to have it brought before the G-5 as one way of pressuring the central banks of various countries to pursue a lower-interest-rate policy.
Bangemann acknowledged that U.S. officials, following through on policy decisions made at the Sept. 22 meeting of the G-5 in New York, still would like to see a faster rate of economic growth in West Germany as well in Japan, but said "we're not willing to do that" simply by "spending more money."
He painted a highly optimistic picture of economic developments in his country, including a forecast for a 3.5 to 4 percent real growth rate this year, with the economic stimulus shifting from exports to domestic investment and improved consumer spending.
Bangemann said he explained to Baker that the surge in growth is based on "public confidence and trust in the stability and continuity" of existing German policies of "stable money, decreasing public deficits, lowering interest rates, a good climate to stimulate investments." Having achieved all of this, "It would be foolish of the government to destroy this basic confidence by just adding five billions there or ten billions there," he said.
He said that Treasury officials "were a little bit astounded" at first by his explanation, but that, at the end of the conversation, "They have understood that a further expansion isn't possible."
But Treasury Assistant Secretary for International Affairs David Mulford said that, although everyone is pleased over recent economic activity in West Germany, the real question is whether the momentum can be sustained.