STOLTENBERG SAYS INDUSTRIAL NATIONS COMMITTED TO CURRENCY STABILIZATION

STOLTENBERG SAYS INDUSTRIAL NATIONS COMMITTED TO CURRENCY STABILIZATION

West German Finance Minister Gerhard Stoltenberg said Friday that the large industrial nations will continue their close cooperation in seeking to stabilize currency markets despite the sharp decline in financial markets last week.

Release on Thursday of the February U.S. merchandise trade figures, which showed an unexpectedly large deficit of $13.8 billion, touched off a selling spree of dollars, stocks and bonds. The falloff followed by one day a report

from finance ministers of the Group of Seven industrial nations which held that current economic conditions were agreeable.The cooperation of the central banks (in intervening in currency markets) and the decisions of the finance ministers after the turbulence (Thursday) underlines the value of our cooperation, Mr. Stoltenberg told reporters.

There may be temporary deviations along the way, but cooperation between central banks and governments is important . . . so that deviations do not lead to overreactions in the markets.

Mr. Stoltenberg said he is convinced that Treasury Secretary James A. Baker III and Federal Reserve Chairman Alan Greenspan are committed to keeping the dollar within a narrow range vis-a-vis the other major currencies.

The responsible officials, the Treasury secretary and the chairman of the Fed want a stable dollar for the foreseeable future, he said.

Failure to stabilize the dollar would lead to higher interest rates in the United States and a possible recession, he said, because foreign investors will buy dollar denominated instruments if they feel the currency is unstable.

Strong market expectations on a decline of the dollar will lead to higher interest rates, he said.

He warned, however, that exchange rate stabilization is not sufficient to correct the global current account balances that have fueled much of the panic on financial markets.

U.S. companies must also show a willingness to become more internationally oriented in their sales outlook, he said.

Mr. Stoltenberg said the Group of Seven, which is compromised of Japan, France, Britain, Italy and Canada in addition to the United States and West Germany, has ironed out differences on using the price index of a basket of commodities as an analytical and performance indicator.

Mr. Baker had pushed for adoption of the commodities basket as an indicator during the World Bank and International Monetary Fund annual meeting in Washington last autumn. The basket is particularly noteworthy in that Mr. Baker would like gold to be included among the commodities.

Mr. Stoltenberg said there was disagreement within the G-7 because some nations worried that gold may be used as a benchmark or trigger mechanism that could be used to pressure certain nations into economic policy changes.