Spate of setbacks on the road to Western recovery

Press, 2 June 1984, Page 11

Spate of setbacks on the road to Western recovery

NZPA-Reuter London A last-minute spate of setbacks on the road to Western economic recovery has shattered the calm of preparations for next week’s summit meeting of industrialised countries. The get-together of leaders of the West’s top seven industrial States — the United States, Canada, Britain, France, West Germany, Italy and Japan — was to have been low-key. A month ago they were looking forward to a relaxed and uncontroversial three days of talks in London from June 7 to 9, striking a keynote of cautious optimism about steady growth after prolonged recession. At the last moment the mood has changed. A LatinAmerican debt crisis is looming, United States interest rates are up, investors are jittery about the health of the banking system, and the Gulf war threatens to provoke a new oil crisis. European leaders will be tempted to blame most of the setbacks on President Ronald Reagan and his economic policies. But, with a Presidential election on the horizon, the Administration has already signalled this is not a time for changing course. Mr Reagan’s summit meeting partners fear that ever-rising American interest rates will hinder the prospects of their own recovery. They also believe the high rates could force heavilyindebted Third World countries. particularly in South America, to default, bringing the banking system down with them. An announcement by Bolivia this week that it

was suspending payment on more than ?USi billion of debt to fuicign banks appeared to support these concerns. The West German Finance Minister, Dr Gerhard Stoltenberg, fired a warning shot when he said American economic policy was casting a “long shadow” over world recovery and worsening the tense situation facing debt-ridden countries. Washington has already pre-empted some of the arguments likely to be raised at the talks by turning the blame on the Europeans for their own failures. The American Treasury Secretary, Mr Donald Regan, said this week that the European nations’ failure to match the American recovery was a result of too much government control of their economies and not enough reliance on the private sector. Mr Regan said the United States was as unhappy as its partners about the high level of in-

terest rates and acknowledged that the issue would dominate the London talks. Washington’s industrial partners complain that while they have been practising monetary restraint to combat recession, American deficit spending has surged ahead to record levels. Mr Regan rejected this criticism in Paris earlier last month. “One gets the impression that all of the world’s economic problems would be solved by a reduction of our budget deficit. I think people should stop deluding themselves on this point,” he said. President Reagan is likely to try to soothe other summit meeting participants by reminding them that he has already taken action to cut the deficit and by giving further assurances that the United States recovery will not be allowed to fuel inflation. The annual parley always generates much soul-search-ing about the value of such brief but wide-ranging gatherings. One area where there could be a hint of movement is on the reform of world trade. Already there is general agreement on the evils of growing trade protectionism although countries differ on how to tackle the problem. The United States and Japan are expected to argue in favour of a new round of negotiations within the framework of the General Agreement on Tariffs and Trade. Analysts believe the French, West Germans and Canadians will push for a fairer trade deal for the Third World to save it sinking further into debt.