WASHINGTON — Officials of the seven leading industrial democracies, avoiding any disputes over conflicting economic policies, pledged Saturday to maintain their efforts to hold the dollar steady against other important currencies.
Despite recent indications of higher interest rates in West Germany and Japan that could undermine the goal of reducing the massive U.S. trade deficit, Treasury Secretary James A. Baker III did not press either of those countries to take any specific actions to keep rates down, officials said.
Japanese officials vowed not to raise the interest rate its Central Bank charges on loans to financial institutions, but they left open the possibility of pursuing slightly higher short-term interest rates in their efforts to fight domestic inflation. West German officials defended their recent modest hike in interest rates as necessary to curb excessive growth in their money supply.
The meeting of finance ministers and central bankers, which is being closely followed by currency traders for clues to whether they should buy or sell U.S. dollars, did not produce any surprises for investors, who had been expecting officials to reaffirm their agreement in Paris last February to work together to halt the two-year-long slide in the dollar.
The officials made no changes in the ranges at which they would like to see currencies trading, participants said. Although the targets for major currencies agreed upon in Paris have never been announced, most analysts believe that the finance ministers and central bankers want the dollar to trade at between about 140 and 150 yen against the Japanese currency and between 1.8 and 2.0 German marks.
President Reagan's decision Saturday to sign a bill aimed at cutting about $23 billion out of the federal deficit next year was singled out for praise in the communique issued after a four-hour, closed-door session at the Treasury Department.
Treasury Secretary Baker, who had been fighting inside the Administration against efforts by Secretary of State George P. Shultz and Secretary of Defense Caspar W. Weinberger to persuade Reagan to veto the budget measure, would have been seriously embarrassed at the international conclave if he had not convinced Reagan to sign the bill. Reagan's announcement was well-timed to coincide with the meeting of officials from the United States, West Germany, Japan, Britain, France, Italy and Canada.
The positive tone of the statement was in contrast to several past communiques, in which the United States was urged to cut its deficit further while West Germany and Japan were urged to pick up the slack in the world economy.
"The substantial reduction in fiscal 1987 in the United States federal budget deficit is a very positive step," the joint statement said. It also praised Japan for rapidly implementing its fiscal stimulus package and cited West Germany for proposing tax cuts in 1988 that "will be greater than previously planned."
The statement included only a mild sentence calling it important that growth improve further in countries with large trade surpluses. By not naming West Germany and Japan, the only two major nations with excessive trade surpluses, the ministers avoided any of the finger-pointing that has marred some of the previous sessions.
West German Finance Minister Gerhard Stoltenberg was all smiles for reporters after emerging from the meeting. "Good communique," he said.
'Just as I Predicted'
Several days before the meeting, Treasury officials had expressed disappointment at West Germany's sluggish economic growth this year, which is expected to fall well under 2%, but they backed away from such statements as the session drew closer.
And Japan's Finance Minister Kiichi Miyazawa told reporters at the start of the meeting: "Everyone is happy about the (economic) situation and recent developments." After leaving the meeting, he added that the session went "just as I predicted."