Quote of the day: "Whatever I say, that is not the intent."
-Treasury Secretary Paul O'Neill
O'Neill Maintains Stance on Dollar
As Industry Executives Seek Relief
By MICHAEL M. PHILLIPS
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- Business executives, farmers, unions and lawmakers ratcheted up the pressure on the Bush administration to take steps to weaken the dollar.
But at a combative Senate hearing, Treasury Secretary Paul O'Neill -- himself a former captain of industry -- stuck to his line that foreign-exchange rates are best determined by the free market, and that the government couldn't do much to alter them even if it wanted to.
In opening his testimony, Mr. O'Neill moved quickly to quash market rumors that he would surrender to the demands of those who argue the dollar's strength is costing American jobs, and that he would abandon the administration's policy of providing verbal support for a strong dollar. "Whatever I say, that is not the intent," Mr. O'Neill said.
The hearing at the Democrat-controlled Senate Banking, Housing and Urban Affairs Committee was largely a vehicle to air the grievances of those infuriated by Treasury's refusal to step into currency markets to drive the dollar down, or at least offer the dollar a verbal nudge downward. The American Farm Bureau Federation, the AFL-CIO, Manufacturers Alliance/MAPI Inc., a policy research organization with some 400 member companies, and the American Forest and Paper Association were among those who sent emissaries to the Hill to make that case.
"The overvaluation of the dollar is one of the most serious economic problems -- perhaps the single-most serious economic problem -- now facing manufacturing in this country," said Jerry Jasinowski, president of the 14,000-member National Association of Manufacturers. "It is decimating U.S. manufactured-goods exports, artificially stimulating imports and putting hundreds of thousands of American workers out of work."
The greenback has slipped on its own over the past month, but it is far from clear whether that represents a lasting change in the dollar's value against other major currencies or simply a blip in the market. Some natural slippage would take the heat off the administration by making it easier for U.S. companies to compete overseas and to fend off imports.
The dollar bought ¥132.5 at the end of March. The greenback bought ¥127.47 in late New York trading Wednesday. The euro stood at 90.54 U.S. cents Wednesday, up from 87.20 cents a month ago, and hit a 4 1/2 month high against the dollar during the day.
A similar slip in the dollar in August 2001, however, proved short-lived, despite the Sept. 11 attacks, which could have been expected to shake investor confidence in the U.S. economy. "It's hard to believe you can take too much comfort from the modest movement that has occurred," said Glen Barton, chairman and chief executive of Caterpillar Inc., the Peoria, Ill., heavy-equipment maker that says the strong dollar is forcing it to cut prices to protect its overseas markets.
Mr. O'Neill has repeatedly made it clear that even if the dollar remains relatively strong, he doesn't see government intervention as the solution. He said the same thing at a private meeting Monday with John Dillon, chief executive of International Paper Co., and other corporate executives intent on convincing the administration to back off the strong-dollar policy, according to a Treasury aide.
The dollar debate is inevitably tangled with a discussion about the huge U.S. trade gap. Many economists believe that the $417 billion current-account deficit in 2001 -- the broadest measure of the trade imbalance -- could sink the U.S. economic recovery if foreign investors grow less willing to put their money into American stocks, bonds, companies and property. In the worst-case scenario, investors pull money out of the U.S. suddenly, sending the dollar into a tailspin, driving up interest rates, and sending the U.S. into recession.
Mr. O'Neill strayed from the economic consensus by arguing that the trade gap isn't a serious threat. Foreign investors, he said, will continue to put their money here because American companies and workers improve their productivity more rapidly than do their competitors.
That unworried view didn't go over well with some of the committee members. "I'm really taken aback that we have a Treasury secretary that doesn't perceive we have a problem with the fact that we have a large current-account deficit," Democrat Paul Sarbanes of Maryland said.
The senator urged the administration to head off a current-account crisis by easing the dollar down in coordination with major U.S. allies. That was what happened in the Plaza Accord, a 1985 agreement the Reagan administration engineered to weaken the dollar. Mr. Sarbanes endorsed such a move now, which its supporters say would ease the dollar down and help narrow the U.S. trade gap.
The secretary, supported by Republican Sen. Phil Gramm of Texas, countered that currency markets are simply too large to be affected by government jawboning or the relatively paltry amounts of money governments could throw into the markets to try to manipulate currency values.
"I don't think it's possible anymore to fool the markets for very long," Mr. O'Neill said.
-- Michael R. Sesit contributed to this article. |
