The Democratic majority of Congress' Joint Economic Committee said in its annual report yesterday that the present international "nonsystem" governing exchange rates is "broke," and called on the administration to fix it with an agreement to set target zones.

In a target-zone system, countries would establish a range in which exchange rates would be allowed to fluctuate, and would agree to take steps to keep the rates from breaking through either end of the range.

The committee, whose chairman is Rep. David Obey (D-Wisc.), commended what it said was a shift in the Reagan administration's position on the need for an international monetary conference. It urged speedy action on a new conference patterned after the Bretton Woods meeting of 1944 that established the International Monetary Fund and the World Bank.

In his State of the Union address, President Reagan said he had asked Treasury Secretary James A. Baker III to study the existing system and to determine whether the major nations should convene to discuss currency relationships.

In a separate report, the Republican minority on the committee did not address the question of monetary reform directly. But it endorsed the administration's Group of Five initiative last September to push the dollar down, while warning that, "As the world's leading market economy, the United States should be extremely cautious in undertaking a devaluation strategy that requires direct central bank intervention."

The Republicans also urged West Germany and Japan, who "sit astride bulging trade and current account surpluses," to provide a thrust for an expanded global trade by boosting economic expansion in their own economies.

In discussing monetary reform, the Democrats said that the most pressing problem has been the massive overvaluation of the dollar. They praised the administration's initiative in signaling through the Group of Five a willingness to deflate the dollar.

"However, we recognize that central bank intervention can only work in the short run," the report said. "What began with the Group of Five is less a solution than a first step back toward a more stable system, such as the one that began to take shape at the 1944 Bretton Woods conference."

Administration officials reportedly are split on the wisdom of the target-zone approach. The idea is bitterly opposed by some American allies, notably West Germany, which thinks that target zones present some of the same problems as a fixed-rate system.

The Democrats and Republicans were far apart on domestic issues, and chose to make separate reports to avoid "the lowest common denominator," they said in a letter to House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.)

The committee majority said that higher revenues must be part of a realistic deficit reduction package, but rejected any boost in individual tax rates. The report was vague on specific revenue-raising measures, but mentioned "improved minimum taxes" and a "progressive" business transfer tax as possibilities within a restructured tax code.

But committee Vice Chairman Sen. James Abdnor (R-S.D.) and other GOP members said higher taxes would inhibit business growth and might increase the deficit.