Clinton sets sights on a friendly Fed

RUPERT CORNWELL

Washington

President Bill Clinton may have sent 20,000 American troops to Bosnia and ushered through a peace agreement between Israel and the PLO. Far more difficult, as he is discovering, is the task of installing Democrat- leaning bankers or economists to the board of the Federal Reserve.

Within the next three weeks, the administration hopes to finalise a package of top-level appointments at the US central bank - coupling the renomination of Alan Greenspan, chairman, to another four-year term, with names to fill the two vacancies on the Fed's seven-man board, one of them the post of vice-chairman.

Of Mr Greenspan's reappointment there is virtually no doubt. As a Republican, he would sail through confirmation hearings on Capitol Hill. His relations with the White House are good, while for Wall Street Mr Greenspan is a living guarantee of the authorities' determination to combat inflation.

In the unlikely event that Mr Clinton did seek to replace him, it would be at the risk of upsetting the markets in a Presidential election year.

But the prospects for the other two nominations which Mr Clinton wants to announce along with that of Mr Greenspan before his term expires on 2 March are clouded. The favourite for the new vice-chairman - who could become arguably the most powerful Democrat in Washington should the President be defeated in November - is Felix Rohatyn, an investment banker.

Austrian-born Mr Rohatyn, 67, is managing director of Lazard Freres and a financier who for decades has been a bridge between the Democratic Party and Wall Street. Much like the outgoing vice-chairman, Alan Blinder, who leaves this week, he is an economic liberal who believes that the central bank has a duty to promote growth as well as protect the value of the currency.

In published articles last year he challenged the prevailing orthodoxy, which Mr Greenspan shares, that expansion of 2.5 per cent cannot be sustained without re-igniting inflation. Such boldness is music to the ears of Mr Clinton as he prays the economy will not slide into recession. It may sit less well with the Republican majority on the Senate Banking Committee, which must confirm him.

Some also doubt that the forthright Mr Rohatyn, whose clout and political skills are largely credited with securing the financial rescue of New York City in the late 1970s, would settle for anything less than the top job. "I would be amazed if he accepts," says one leading Wall Street financier. "Felix is not going to hang around as number two to Alan Greenspan. Felix doesn't think he's number two to God."

There is, too, a smaller bureaucratic problem. According to Fed rules, only one board member can hail from any of the Fed's 12 administrative districts. Mr Greenspan already occupies the New York slot, so that Mr Rohatyn may be forced into official residence in Wyoming. This is within the purlieu of the Kansas City branch, where Mr Rohatyn is building a summer home.

Other potential candidates for vice-chairman are few. Alice Rivlin, White House budget director, is one of the few to have been mentioned. The appointment of a woman would fit in well with Mr Clinton's insistence on "diversity" in government. Ms Rivlin, however, is said not to be keen.

Similar problems bedevil the choice of the seventh board member, unfilled since Mr John LaWare resigned 10 months ago. Many names have been mentioned. None has the credentials of a sure-fire winner.