NY Times. What Happened to Those Rate Cuts?
September 18, 1998
ANALYSIS
nytimes.com
By DAVID E. SANGER
ASHINGTON -- On Monday President Clinton declared that
with the world in its greatest economic turmoil in a
half-century, "the industrial world's chief priority today, plainly, is to
spur growth." The markets soared, figuring that the combination of a
presidential call to arms and a statement issued the same day by the
seven largest industrial economies meant that coordinated action was
on the way -- chiefly a cut in interest rates.
By Wednesday afternoon, that hope was dashed. First Germany,
then the chairman of the Federal Reserve, Alan Greenspan, said
"there is no endeavor to coordinate interest rate cuts."
Was this a case of miscommunication? Of a weakened president
trying to address a global crisis with a strong speech instead of an
immediate action plan? Or at a moment of maximum financial peril, is
the world relying on four leaders -- in Japan, in Germany, in the
United States and in Russia -- who see the unfolding crisis in very
different terms, and are each holding on to power by a thread?
A miscommunication case seems highly unlikely. Greenspan, White
House officials note, helped draft the statement that the Group of
Seven nations turned out on Monday. It was no accident that the
language Clinton used in his speech Monday closely paralleled the
wording that had been worked at over the weekend among the seven
nations.
Moreover, Greenspan seemed to hint that the global crisis could lead
the Fed to cut interest rates in the United States, even if it acted
alone. He noted that the forces of deflation -- not a word Greenspan
uses lightly -- were moving toward American shores. And if
Greenspan's colleagues around the world were planning a global cut,
the last thing he would do is telegraph the punch.
That leaves the two other options. By all accounts, Clinton's six-point
plan for global recovery is still vague, at best. And even Clinton's own
advisers, speaking on condition of anonymity, concede that its
execution depends on a display of raw power by leaders who are
hardly in a position to swing for the fences.
"You have to give the president credit and support for trying to get
the country focused on this issue," said Robert Zoellick, the
president-designate of the Center for Strategic and International
Studies, who tried to manage the competing interests of the world's
economic powers when he worked for James A. Baker 3d at both
the Treasury and State Departments.
"But it should have come months ago, and you have this sense -- as
you often have in the Clinton administration -- that they were putting it
all together at the last moment."
In fact, some of the aides surrounding Clinton acknowledge that the
speech, and the actions that follow it, should have come before
Russia was in full collapse, and certainly before Latin America was
threatened. But they argue that now that Clinton has entered the fray,
he intends to push through his agenda for world recovery -- despite
the calls for his resignation or impeachment.
"There is no question that American leadership is indispensable if
things are going to actually happen," Treasury Secretary Robert
Rubin said Wednesday. "And there's equally no question that the
president has provided that leadership, and the world looks to him for
that leadership."
The president's Cabinet is, of course, expected to make that kind of
argument. But it is unclear whether Clinton would be able to whip the
world into action even if he was playing at the top of his game this
month -- and clearly, he is far from it.
He is not the only one. The central conundrum in calling for concerted
action again the global economic contagion is that no country sees the
problem -- or the solution -- through the same prism. In times of
world prosperity, that is rarely a problem. At times like this, it can be
disastrous.
In Germany, there are two issues dominating the country: The election
in 10 days that will decide if Chancellor Helmut Kohl wins another
term after 16 years in power, and the imminent creation of the
European Monetary Union.
Kohl's aggressive moves to aid Russia since the fall of the Soviet
Union is a sore point with voters. He is not about to worsen his
already-pessimistic poll numbers by suggesting that Germany should
set aside its own domestic imperatives to act as one of the
locomotives to pull rest of the world out of trouble.
A senior official who deals with Germany daily on the economic crisis
notes that "you get the sense that they think all this would go away if
the world would just pull up its socks." Put simply, a crisis that began
in Asia still seems distant to most people in Germany, even more
distant than it seemed to many Americans before its economic impact
here began to affect farmers in Idaho and chip-makers in Silicon
Valley.
There is another reason for German reticence: Lowering interest rates
now, even as part of a global cut, might signal a diminishment of the
country's postwar vow to eradicate any hints of inflation. That is
hardly the message Germany wants to send just as it is about to
adopt the new, common European currency, the Euro.
In Japan, there are completely different preoccupations. The
country's weak prime minister, Keizo Obuchi, arrives in New York
on Sunday, and hoped to bring even modest evidence that the
country's Parliament is closer to solving its huge banking problems
and stimulating an economy that is shrinking at an alarming rate. Right
now Obuchi is stuck in the mud, without the power to strike a deal
with the opposition, and stunned by the mounting criticism around the
globe that Japan is responsible for much of Asia's problems.
"The way the Japanese see it, the only crisis is their internal one," said
Jeffrey Garten, a former top Clinton administration official and now
dean of the Yale School of Management. The result is that Obuchi,
who meets Clinton on Tuesday, is in a position to promise nothing in
the way of bank reform and fiscal stimulous beyond what Japan has
already announced -- a plan the markets and the Treasury view as
insufficient.
In Moscow, Boris Yeltsin is presiding over a government that
Thursday announced it was going to do exactly what the world has
warned it not to do -- print rubles to pay off its debts, even if it
triggers hyperinflation.
And then there is Clinton, trying to convince the world that he can
save his job and remake the world's financial architecture all at once.
Perhaps he can: His top aides have fanned out across Washington
this week to make the argument that Clinton is dealing with the calls
for his resignation or impeachment by digging even deeper into major
issues on his plate, starting with steering clear of the huge icebergs
that could rupture sleek economic vessel the the United States has
become. It is a tough case to make. Clearly the only issue focusing
White House aides now is the president's survival in office.
"Are we distracted?" one White House aide asked rhetorically this
week. "Well, its fair to say there are more people in this building
working to save the president than there are to save Brazil."
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