Treasury Secretary James A. Baker III went out of his way yesterday to link progress in the U.S. economy with continued cooperation with America's major allies.
Baker's words were meant to impress on Europe that the United States, which used to be accused of not caring what others thought, is following a new policy.
He singled out for praise the September meeting of the Group of Five industrial nations in New York, where Baker and his fellow finance ministers agreed to take steps boosting the value of the yen and other major currencies, thus devaluing the dollar.
And a January meeting in London of the G-5 -- the United States, Japan, West Germany, France and Great Britain -- "showed all countries were working to continue efforts for sustainable growth without inflation," he said.
At a briefing for reporters on the president's new budget, Baker said that progress here and globally last year had resulted from such "intensified efforts" at promoting "a favorable convergence of economic performance" in the world economy, evidenced in a reversal of the dollar's sharp rise.
"We hope to build on the progress this year, and to see stronger growth abroad," Baker said.
In his State of the Union message Tuesday, Reagan directed Baker "to determine if the nations of the world should convene to discuss the role and relationship of our currencies." His words suggested the possibility of a new, major world conference on monetary reform.
Without naming the G-5 exercise, Reagan said "there's more to do" in coordinating economic and monetary policy among major trading partners, asserting, "We must never again permit wild currency swings to cripple our farmers and other exporters."
Some observers suggested that the president's endorsement of greater cooperation on monetary affairs was needed to show that the initiative was administration-wide, not merely a one-department affair. "As powerful as Baker is, the Europeans needed to see it from the president," said consultant David Smick of Smick-Medley Inc.
Baker, who in recent interviews has said that the United States is interested in achieving greater stability in exchange rates, told reporters yesterday that "it is premature" to discuss specific ideas that will flow from the president's new directive until after a meeting in Washington of the International Monetary Fund's Interim Committee on April 9.
The committee is scheduled to receive a report from the Group of Ten industrial nations, and a separate document from the Group of 24, representing less-developed nations. The G-10 report casts doubt on the feasibility of achieving greater stability, while the G-24 report argues that finding some ways of avoiding wild fluctuations has become a political necessity.
Baker, in contrast to his predecessor, has become more convinced of the benefits of more stable international exchange rates. Driven by the need to defuse protectionist trends in Congress that were fed by an overvalued dollar, Baker was persuaded last last summer that the Reagan administration's firm position against intervention in the exchange markets needed to be altered. That led to the New York G-5 meeting where the revised U.S. position was warmly endorsed by the Europeans and Japan.
At a private conference in the fall sponsored by Rep. Jack Kemp (R-N.Y.) and Sen. Bill Bradley (D-N.J.), Deputy Treasury Secretary Richard Darman said that "some sort of target zones or reference zone system . . . may have some virtues."
In a target-zone system, countries agree to keep their currencies from fluctuating outside of agreed-upon limits, as is done in the European Monetary System. But Darman also pointed out the political difficulties that would be inherent in such a system. The West German government, which would be critical to the success of any arrangement for greater currency stability, is highly dubious about the wisdom of target zones covering the dollar, mark and yen.
Darman is reported to have said privately in the past few days that the important thing is to "develop a policy without a label that moves toward reform. As soon as you put a label on it, it scares somebody."
C. Fred Bergsten, a Treasury official in the Carter administration, and a backer of target zones, said yesterday that the president's formal call to study ways to get a sound and stable dollar "is a marked evolution" from the G-5 process.