gata on g8 and the $us

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    Full agenda confronts G-8 summiteers;
    Bush reiterates adherence to 'strong dollar' policy

    By William L. Watts
    Sunday, June 1, 2003

    WASHINGTON -- To no great surprise, there was much to
    talk about regarding the global economy as President
    Bush sat down Sunday with fellow leaders of world's
    seven biggest economic powers -- plus Russia -- to
    begin their latest summit.

    Persistently slow economic growth, after all, is a problem
    that's plagued most of the advanced industrialized countries
    of late. But just as predictably, little concrete action is
    expected to come out of the three-day summit taking
    place this year in Evian, France.

    Overshadowing the economic discussions -- including
    what, if anything, to do about the U.S. dollar's recent
    weakness -- will be, among other things, efforts to
    repair trans-Atlantic relations frayed by the U.S.-led
    war in Iraq.

    Summit participants said the greenback's retreat
    against the other major global currencies is on Monday's
    agenda, according to media reports.

    Sunday was given over to discussion of problems facing
    the developing world, including AIDS, hunger and debt
    relief. Leaders from major developing nations such as
    China, Brazil, and India were invited to participate in the
    talks, held under sunny skies at a resort on the shores
    of Lake Geneva.

    Meanwhile, anti-globalization protesters numbering in
    the thousands were kept well away from the summit site.

    "Our policy is a strong dollar," Bush was quoted as
    saying in an interview on Russian television before
    heading to the G-8 summit. "And we believe that good
    fiscal and monetary policy will cause our economy to
    grow and that the marketplace will see a growing
    economy and therefore strengthen the dollar."

    Indeed, talk about the dollar began before the leaders
    even made it to Evian. The dollar rose Friday as currency
    traders began to factor in a possible statement from the
    leaders mentioning the dollar's ongoing slide.

    In his interview with Russia's RTR TV, Bush also said:
    "The market, at this point in time, has devalued the
    dollar, which is contrary to our policy."

    The president is expected to cut short his participation
    in the Evian summit, as he heads to the Middle East for
    talks on the much-ballyhooed "road map" designed to
    foster peace between Israel and the Palestinians.

    German Chancellor Gerhard Schroeder told a Russian
    news agency that the euro's sharp gains against the
    dollar were slowing his country's growth, while Japanese
    Prime Minister Junichiro Koizumi told parliament he would
    argue that the yen was too strong.

    That might mean a group statement including some
    mention of foreign exchange rates.

    But there's little reason to believe leaders will come up
    with anything akin to an agreement aimed at halting or
    reversing the dollar's downtrend, said Alex Beuzelin,
    senior market analyst at Washington, D.C.-based
    Ruesch International.

    "I don't think at this point that anybody expects that
    the G-8 summit is going to produce any kind of
    coordinated action to support the dollar," he said. The
    group includes the U.S., Canada, Japan, the United
    Kingdom, France, Italy, Germany, plus Russia.

    "But I think just the fact that you have these leaders
    mention exchange rates, which typically doesn't happen,
    that has sparked market uncertainty that they might
    discuss it," Beuzelin said.

    Dollar probably won't dominate

    There are several reasons to doubt the strength of any
    currency-related comments this weekend, analysts said.

    For one, G-7 finance ministers, who met earlier this
    month on the groundwork for this weekend's summit,
    offered no signal that a currency statement or plan for
    coordinated intervention was in the offing.

    In fact, they offered little evidence that much will be
    accomplished on the economic front at all, said Lael
    Brainard, a senior fellow at the Brookings Institution,
    who served as President Clinton's G-7 envoy.

    It's clear the Bush administration isn't so very unhappy
    with the dollar's slide, which has tickled U.S. exporters.
    Treasury Secretary John Snow has made a habit of
    mentioning his faith in the "strong dollar policy," while
    making clear that the "policy" consists of efforts to
    strengthen economic fundamentals, not intervention nor
    even consistent dollar-supportive jawboning.

    In fact, it was after the meeting of finance ministers that
    Snow told reporters currency moves had been "fairly
    modest," which in the nuance-sensitive currency markets
    was taken as another signal to short the buck.

    Only Japan has actively, and somewhat successfully,
    moved to dampen the dollar's slide, intervening regularly
    in the currency markets to hold down the value of the yen.

    "And as far as the euro zone is concerned, for the most
    part, European officials have downplayed the significance
    of the euro's appreciation," Beuzelin said. That could
    change if the euro continues to appreciate against the
    dollar at its recent pace, he added.

    Claude Barfield, a resident scholar at the American
    Enterprise Institute, questioned whether G-8 leaders could
    do much to boost the dollar, even if they wanted to.

    "My hope would be that rather than have the hubris of
    thinking somehow that the political leaders can change
    what are economic fundamentals, there will just be the
    statement that there will be intervention only to stop some
    sort of precipitous fall in the dollar or some sort of
    unregulated or out-of-control change in currency," Barfield
    said at an AEI panel discussion.

    'Full discussion' promised on trade

    The dollar isn't the only economic issue on the agenda.
    Trade will also loom large. The G-7 finance ministers
    warned at their meeting earlier this month that trade talks
    were reaching a crucial stage.

    On Wednesday, negotiators from around the world failed to
    meet another key deadline in the current Doha round of World
    Trade Organization talks. They failed to reach an agreement
    on cutting tariffs on industrial goods. The Doha round is
    scheduled to conclude by January 2005.

    U.S. Secretary of State Colin Powell last week said there
    would be "full discussion" of trade issues at this weekend's

    But observers weren't expecting any breakthroughs, especially
    on the crucial issue of agricultural subsidies. The U.S. had led
    a charge to eliminate subsidies, which has met stiff resistance
    from the European Union, particularly France.

    The G-8 leaders will no doubt endorse a call for a successful
    conclusion to the Doha round, Barfield said.

    But there's "no sign ...that the underlying conflicts ...
    between the United States and EU are about to be resolved as
    a result of this" meeting, he said.

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