The Carter administration's foreign economic policy strategy, which depends on a coordinated economic expansion in the United States, West Germany, and Japan, "is likely to be frustrated," a staff report published today by the Senate Subcommittee on Foreign Economic Policy concludes.
It is based on a study of economic policy issues with leaders in the United Kingdom, France, and West Germany undertaken by subcommittee staff members Jerome I. Levinson and Karin Lissakers.
The United States has made clear, notably during Vice President Mondale's post-inaugural worldwide trip, that it believes the three stongest industrial nations must boost their economies at home to help insure economic recovery among the less afluent nations.
This will be one of the major topics of the economic summit to be held in London on May 7 and 8. But there have been signs of resistance by West Germany, as was noted in the private conversations here last week by President Carter and British Prime Minister James Callaghan. Callaghan is a vigorous supporters of the expansionist policy of the "Big Three" which would provide a greater market for exports from Britain and from other hard-pressed nations.
The staff report suggests that in contrast to the French and British, the West German authorities would have preferred a continuation of the Ford administration to the expansionist Carter regime.
It quotes a high German Finance Ministry official as saying the Ford administration had followed "prudent" economic policies. "They are doing all the right things," this official was quoted as saying in a December conversation.
The German concern continues to be a revival of inflation, Levinson and Lissakers report. "For domestic political reasons, it is unlikely tht West Germany will adopt expansionary economic measures leading to a German growth rate of 7 or 8 per cent," they wrote.
The West German government would be more amenable, they continue, "to direct financial transfers than economic expansion as a means of assisting the weaker countries, preferably through the International Monetary Fund."
Reliance on the IMF, rather than further private bank assistance, is also a basic tenet of Carter administration policy, in the belief tht the IMF can impose austere financial discipline on borrowing countries.
But the staff analysis characterizes the final conditions of the $3.9 billion IMF loan to Great Britain as essentially "soft," despite accompanying rhetoric suggesting otherwise. It thus concludes that "the British case demonstrates that it is illusory to think that the IMF is any more acceptable in exerting such [disciplinary] pressures than bilateral channels."
The general conclusion of the staff report is that "there are severe limits" on the ability of lenders to impose reform conditions on borrowing countries "beyond the realm of the domestic political consensus."
The report also:
Says that British North Sea oil reserves have been consistently under-estimated as a potential source of leverage on the Middle East oil cartel. It criticizes the Callaghan government for failure to enunciate a clear export policy, and suggests that U.S. negotiators, discussing the current British financial plight, raise this as a bargaining question.
Warns the French, suffering from combined inflation and unemployment, that they are "probably mistaken" to depend on West Germany to accept "a strong surge of French exports." The forecast is that France will have to borrow substantial money in the Eurocurrency market in the second half of 1977, and that the French will prove recalcitrant on international economic issues "until Britain defines a 'European' policy for North Sea oil."