FED CHAIRMAN VOLCKER SAYS BANK PROPOSALS A WORRY
The chairman of the Federal Reserve
Board, Paul Volcker, has written to the chairman of the House
Banking Committee to raise concerns about legislative proposals
scheduled for consideration Wednesday.
    Volcker told committee chairman Fernand St. Germain a
proposal to deny primary dealer status to firms from countries
that do not grant U.S. firms equal access to their government
debt markets might invite retaliation against U.S. firms
abroad.
    He added, "even Japan, against whom this proposal seems to
be particularly directed," has started opening its markets.
    In his letter, made available at the Treasury, Volcker also
said a proposal to ease debt problems of developing countries
by setting up a public facility to buy their debts owed to
commercial banks, was a problem.
    "I believe that the prospect of debt relief would undermine
the difficult internal efforts of the borrowing countries to
achieve the structural reform that is needed regardless of the
policies that are followed on servicing external debt," Volcker
said.
    It might also cause private lenders to become reluctant to
extend more credit to the borrowing countries, he said.
    Volcker said he endorsed comments by Treasury Secretary
James Baker "about the inappropriateness of using public
resources for purchasing private commercial bank debt, which we
both see as an inherent aspect of the proposed international
debt facility."
    He also said a proposal for establishing formal procedures
for international negotiations on currency exchange rates "is
unrealistic and could well have damaging effects."
    "For example, the bill's directive to intitiate negotiations
in order to achieve a competitive exchange rate for the dollar
-- a matter upon which there can be considerable difference
among analysts -- runs the risk of building up potentially
destabilizing market expectations," Volcker said.
    He recommended "we should not lock ourselves into formalized
procedures for international negotiations" on exchange rates but
instead use other, more flexible means like the recent mmeting
in Paris between U.S. treasury and central bank representatives
and those of major trade allies.
 Reuter
