The world's financial chiefs missed a chance to prevent the "excessive" fall of the US$ through their failure to coordinate reactions to the plunge, International Monetary Fund managing director Michel Camdessus said yesterday.
Camdessus said financial authorities in Germany, Japan and the U.S. could have stemmed the dollar's rapid decline by acting together in adjusting interest rates, intervening in markets and issuing clear statements on their support for the currency.
"This would have...served the world well," he said, but was missed by a breakdown in coordination among the members of the Group of Seven industrial countries.
Despite the huge flow of funds washing across global markets every day, governments are far from helpless in influencing the value of individual currencies, Camdessus said.
"I think the authorities can do a lot. Capital flows don't move... capriciously. They move because [financial markets] feel somewhere something's wrong in the macroeconomic sectors in some countries."
On the first day of the IMF's spring gathering, the fund's director also said European attitudes to the North American Free Trade Agreement made it tougher to deal with the eruption of Mexico's economic crisis in December.
Europe's leaders felt NAFTA made the issue a North American problem, which should be dealt with by Canada and the U.S., he said. Their approach added to tensions with the U.S. and made it harder to arrange the financing needed to halt the crisis and keep it from spreading.
Camdessus said they were proved wrong in the end, when it became clear the economic "contagion" from Mexico could spread to countries far beyond North America.
In addition to the IMF session, finance ministers from the G-7 countries are in Washington to deal with a heavy agenda of issues, many of them stemming from the fallout of Mexico and the collapse of the dollar against the mark and the yen.
Despite those problems, Camdessus painted a positive picture for the international economy, based on continued growth and expansion of trade.
An IMF report on individual economies projected Canada's gross domestic product will grow 4.3% this year but slow to 2.6% in 1996. Inflation should remain about 2%, while unemployment falls gradually to about 9% by next year.
It praised the federal budget for its attempt to lower the deficit to 3% of GDP, but said Ottawa must go farther or face disruption from market disturbances or future downturns.
|This information is provided by the Financial Post.|
Please send comments to:
Revised: June 3, 1995
All contents copyright ©, Financial Post. All rights reserved.