War of words at currencies summit

Hopes of agreement between the Group of Seven leading industrial countries on ways to combat currency instability faded further as finance ministers met in Washington yesterday.

A war of words over what action, if any, would halt the slide of the dollar and the rise of the yen and the German mark dominated the G7 ministers' agenda.

But it was clear that the differences between their views have widened in recent days. Some officials said they expected fireworks at the meeting.

The US Treasury Secretary, Robert Rubin, repeated his earlier remarks that interest rate changes would depend on the state of the domestic economy rather than international conditions. Several other G7 countries, including Germany and Japan, along with the International Monetary Fund itself have all repeatedly called for the US to adjust its economic policies.

The Bundesbank president, Hans Tietmeyer, said here yesterday that countries like the US with big deficits would have to tackle them. Mr Rubin denies that the deficit is a problem, arguing that it is smaller relative to the size of the US economy than any other G7 fiscal deficit.

On the other hand, Britain and Germany were certain to join the US in opposing French and Japanese proposals for active management of currency markets. Mr Tietmeyer said target zones for exchange rates were not viable.

The British, Americans and Germans are lukewarm about further direct intervention. G7 central banks - led by the Bank of Japan - have spent about $30bn buying dollars in the $1,000 million-a-day currency markets this year.

Ministers are likely to pay lip service to continued co-operation. All have said in recent weeks that a stronger dollar would be desirable.

Any formal communique is likely to emphasise the consensus on what Mr Rubin called "a modern architecture for international co-operation in financial crises", including an early warning system run by the IMF.

The G7 will also consider how the IMF should manage international rescue funds in future. Michel Camdessus, the IMF managing director, would like the Fund to double its $200bn-plus capital. Some increase could be agreed, but Mr Rubin said the fast-growing Asian economies should contribute to the IMF's "General Agreement to Borrow" fund, enhancing this as a source of emergency finance.

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