Key central bankers who managed the recent dramatic coordinated reduction of interest rates warn against the conclusion that such international economic cooperation might become commonplace.
None of the American and European central bankers who were interviewed last week would say flatly that there would not be another such coordinated interest rate move. But all agreed with one official who said: "We don't want to and shouldn't get locked into a particular pattern."
Moreover, the central bankers agreed that when the Federal Reserve Board joined the West German Bundesbank and the Bank of Japan on March 6 and 7 to lower interest rates, it represented a consensus of their informal "old boy" network rather than a yielding to political pressures from their finance ministers.
The insistence of the central bankers that whatever has happened on interest rates now was not blue-printed at a London meeting of the Group of Five major industrial nations in January indicates that the question of central bank "independence" from political authority is very much on their minds. As one of the bankers snapped: "We shouldn't be expected to act or to promise to act simply when any bunch of finance ministers decides that it's time to call a meeting."
And a leading European economist with strong government connections said: "What really seems to have happened was a general deceleration of inflation, on top of which there was an oil-price decline that confirmed it. This was a standard case for central banks to do something . . . Long-term interest rates were coming down anyhow, so the central bankers could say, 'We followed the market.' "
One central banker took a clear and classic position: "Coordination of monetary policy is nothing spectacular. I also don't like the idea that it might become spectacular, because then it becomes a political affair."
The Group of Five -- finance ministers and central bank heads of the United States, Japan, West Germany, France and Britain -- have held two significant sessions in the past six months linked to coordination of global economic policy.
Last week, Canadian Prime Minister Brian Mulroney told Washington Post editors and reporters he expected that a broadening of the G-5 to include his country, and Italy would be on the agenda for the Tokyo economic summit in May, leading to a further institutionalization of its global role.
The first of the recent G-5 meetings -- in New York last Sept. 22 -- produced a successful agreement to devalue the U.S. dollar through coordinated intervention. Additional agreements calling for reduced budget deficits here and economic expansion in other countries have not yet been fulfilled.
The second meeting was held in London on Jan. 18 and 19, and according to information leaked in advance by Japanese and German authorities, was to have set in motion a coordinated reduction of central bank interest rates. Unofficial accounts of this secret session have varied, leaving uncertain the exact nature of the commitments, if any, that were made at that time.
A policy-maker in one of the G-5 finance ministries confirmed the delicate nature of the relationship between the politicians and the bankers: "The central bankers don't like the world to think that finance ministers, either within their own country or collectively among countries, are telling them what to do, or even influencing them in what to do."
The central bankers, while firmly denying any cause-and-effect relationship between the final result and the London meeting, did not suggest that the finance ministers are without influence, or that the G-5 exercise has not produced important results, notably in helping to coordinate other elements of international economic policy.
But they scoffed at suggestions, such as the one made earlier this month by Federal Reserve Vice Chairman Preston Martin, who resigned Friday, that the coordinated interest-rate decline could not have happened without the G-5 exercise. Even a U.S. government official with a stake in seeing the G-5 process lead to greater economic coordination was cautious in claiming credit.
"You can't make unequivocal judgments like Martin's," the official acknowledged. "But if [Fed Chairman Paul] Volcker was wavering on interest rates, the G-5 took away a good deal of his ability to waver. And I really don't think we would have been able to get the German element, without the pressure, however much they may dislike the pressure of the G-5 and the associated media interest in the phenomenon."
One of the leading actors in the interest-rate drama insisted that the London G-5 meeting was a routine session, "But it was obvious that interest rates were a relevant subject to talk about."
Even so, he added, the discussion of interest rates took up less time in London than agenda items such as the Third World debt situation, general economic conditions, the degree of the dollar decline (faster than anticipated in September), and the broadening of the G-5 to include Canada and Italy (to which the Germans and British objected).
There was no agreement, he insisted, on a timetable for a coordinated move on interest rates. All those interviewed agreed that while Japan, France, and Britain were disposed to see some advantage from lower interest rates globally, both Volcker and Bundesbank President Karl Otto Poehl were not anxious to join in the game in London. Volcker reportedly feared that the dollar already had moved down too quickly, and Poehl said that the German economy did not need the stimulus.
Yet, back at the Fed, according to Martin's statements at a press conference announcing his resignation as vice chairman, he had been pressing Volcker for a discount-rate reduction since November.
Reportedly, Treasury Secretary James A. Baker III and Volcker told the G-5 that both Japan and Germany should act to expand their economies by lower interest rates and other means, without expecting identical action from the United States, where preliminary economic indicators still looked strong.
But soon after the London meeting, the global outlook began to change: market interest rates began to fall without central bank action, and crude oil prices plunged dramatically. By the time of a regular monthly meeting of the central bankers of 11 industrialized nations at Basle, Switzerland, on Feb. 10, a consensus began to emerge for central bank cuts in the discount rate.
Much of the coordination of international monetary policy takes place at Basle, under the aegis of the Bank for International Settlements. In addition, there are regular phone calls among Volcker, Poehl (who talks with Volcker at least twice a week), Shijuro Ogata, deputy governor of the Bank of Japan (who speaks English), Jean Godeaux, president of the B.I.S., and others.
"We all agreed [on Feb. 10] that with inflation rates down, and oil prices plunging, we could safely try to see to it that nominal interest rates [would] go down, returning real interest rates to normal levels," said a key European central banker. "Present inflation rates justify lower interest rates the world over."
The Germans also maintained what other Europeans considered a super-cautious posture. With both Volcker and Poehl resisting, the coordination process on interest rates that Baker had hoped to stimulate in London was not taking place. Japan, worried about a recession, cut its discount rate by one-half point in January, without waiting for the others. But another unilateral Japanese cut might have acted to reverse the appreciation of the yen -- a main goal of the September G-5 meeting.
Well into February, neither Volcker nor Poehl gave a sign to the others that they were ready to move. That was the situation on Feb. 24, when the four Reagan appointees at the Federal Reserve took the situation in their own hands, and over Volcker's objection, voted 4 to 3 to cut the U.S. discount rate from 7.5 percent to 7 percent. Martin said Friday he was sure the other nations would follow the Fed lead. But the vote was withdrawn, and Volcker got a chance to pursue the possibility of coordinated action, in which the Fed would follow, not lead.
When Volcker got in touch with the German central bank immediately after the Feb. 24 ballot and re-balloting, The Washington Post learned, Poehl told him the Bundesbank had finally agreed to lower the discount rate, but that the formality of ratification by the German Central Bank Council had to be arranged.
The Japanese, for all of their talk prior to the London G-5 meeting about the need for a coordinated interest-rate drop, took some additional time to make the same commitment. On March 6 and 7, the three nations finally lowered their discount rates, Germany leading the way, followed by Japan, then the United States.
On balance, said a central banker of a smaller country not present at the G-5 meetings, "the political pressure put on the central bankers may have delayed what actually happened. That's a statement that of course can't be proved. But once you had all that publicity about the London meeting -- the Bangemann statement for example -- that actually slowed things down."
German Economics Minister Martin Bangemann had told reporters in Washington that Baker was angling for a coordinated interest-rate move in London. The resultant media attention, some officials said, was counter-productive among the central bankers.
A U.S. official drew the obvious conclusion and lesson: "We've got to get back to where the G-5 is secret and doesn't do anything for a while so that we kill off this attention to it. But while we're not encouraging the media attention, we are encourging that the G-5 do things. And if the G-5 does things they will become public, and there will be the media attention to the institution.
"The media attention will be an unwelcome pressure in the eyes of the central bankers. That's entirely natural. But to some degree coordination is unnatural so you need a little extra pressure in order to encourage it to take place."