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Volcker Denies He'll Quit Fed for World Bank

October 16, 1985|Associated Press

WASHINGTON — Federal Reserve Board Chairman Paul A. Volcker, declaring "I'm here, I'm staying," on Tuesday put an end to speculation that he might leave his post to become president of the World Bank.

"To slightly misquote the great American writer Mark Twain, the reports of my demise are greatly exaggerated," Volcker told a business conference sponsored by the American Stock Exchange.

Volcker also said that this nation's current trade deficit, approaching $150 billion, was "unsustainable" and that basic reforms are needed to lower the value of the dollar and to restore economic equilibrium--both at home and abroad.

He said that the United States must reduce its own $200-billion annual budget deficit and that other nations must take steps to stimulate their economies.

There is "no magic in manipulating exchange rates alone," and Fed action to try to drive the dollar further down with a more accommodating monetary policy is not an option, Volcker said.

'Constructive' Action

He said action last week by the Senate--endorsed by the Reagan Administration--to mandate a balanced federal budget in six years was a "very constructive" step toward putting this nation's financial house in order. However, he said that living up to such budget discipline would be politically difficult.

Volcker, whose term as Fed chairman runs through August, 1987, was asked by a member of the audience about the rumors of an impending job switch to the World Bank.

"I'm here. I'm staying. Nothing is forever--but that is the way things are at the moment," Volcker said.

Volcker's remarks, his first public utterance on the speculation since it began circulating last month, brought a hearty round of applause from the luncheon audience of bankers and investment officials.

Volcker called the World Bank "a very prestigious institution for which I have great respect." He said the bank would play a role of increasing importance in the months ahead in grappling with the Third World debt crisis.

"The question arose some time ago, whether that was an appropriate place that I might think about. And, in spite of all those things I said about it, my answer is no," Volcker added.

Clausen Will Retire

The World Bank's current president, A. W. Clausen, announced last week that he will retire when his term expires next July, adding to the speculation that Volcker might be tapped as his successor.

Volcker said government intervention in currency markets--following an agreement reached at a meeting in New York last month among finance ministers of the five major industrialized nations to work together to drive down the value of the dollar--would have limited impact in easing down the dollar.

"Either deliberate manipulation of currency markets, which is difficult at best . . . or market movements from whatever cause are not going to solve our problems--and there shouldn't be any illusions on that score--if our basic policies are out of hand.

"There's no free lunch in economics," Volcker said. "There's no cure for the problem other than going for the fundamentals, no cure for the dilemma."

Volcker said that the nation's economy "as a whole is doing quite well" but that this level of economic performance cannot long be sustained in light of the unrealistically strong dollar and the accompanying trade deficit.

"Sooner or later these problems will catch up with us," Volcker said.

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