Treasury Secretary James A. Baker III, in an upbeat assessment of the upcoming seven-nation economic summit in Toronto, said that the world economy is in better shape now than it has been for any of President Reagan's previous seven summits.
Because U.S. officials don't want to upset financial markets in the midst of a presidential election campaign and because U.S. allies would prefer to wait and deal with Reagan's successor, few new policy initiatives are expected during the session.In an interview late last week, Baker also said that he won't let widespread reports that he's about to leave his post to join George Bush's Republican presidential campaign distract him from giving his full attention to the economy.
The Treasury secretary said there was "no chance" that any decision would be made in the coming week before the summit. Republican sources have said they expect Baker to resign sometime this summer to help run Bush's campaign.
The economic summit, the 14th in as many years, provides a forum for the leaders of the United States, Japan, West Germany, Britain, France, Italy and Canada to map out strategies to promote world growth.
But because the world economy is doing surprisingly well at present, world leaders see no reason to launch any grand new initiatives at the three-day meeting, which begins June 19.
Economic growth has accelerated, stubborn trade imbalances have finally begun to narrow and the dollar, after a dizzying, three-year plunge, has stabilized.
"I think the world economy is in the best shape that it has been in going into any of the eight economic summits that I have attended with President Reagan," Baker said at the end of last week during a relaxed interview in his office.
Baker, considered one of the president's savviest political strategists, served for four years as White House chief of staff before taking the Treasury job in early 1985.
He said that the drive he began in September 1985 for closer international economic coordination among the summit countries, known as the Group of Seven, had helped the major industrialized countries withstand the shock from last October's stock market collapse.
"The Group of Seven countries in the aftermath of that event refused to turn inward. They continued to cooperate closely . . . to spend an extraordinary amount of time conferring by telephone, with the result that some rather major remedial actions were taken," Baker said.
He said that interest rate reductions in Europe, trade adjustments in Japan and the two-year federal deficit reduction pact reached last December in the United States had all helped to calm financial market jitters and set the stage for accelerating growth.
"We have a coordination process which has been tested by the adversity of the stock market crash," he said. "I think the markets are becoming convinced that the G-7 is unified and that we are acting in a coordinated and cooperative way."
Baker said this renewed confidence had led to an increase in foreign private investment in the United States this year. In 1987, the flow of private funds, which had been helping to finance the federal budget deficit, almost dried up.
Foreign central banks filled in the gap, but Baker said there was evidence that the amount of central bank purchases of U.S. debt had fallen to roughly one-fourth of what it was a year ago.
"This summit hopefully will recognize the contribution the Reagan-Bush administration's policies have made to world growth, policies which were derided when they were first proposed at the initial summit in 1981," Baker said. "Most of the major countries are now moving wholeheartedly toward free-market economic policies such as deregulation, privatization and tax reform."