
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, July 10, 1994                   TAG: 9407100021
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A9   EDITION: METRO 
SOURCE: New York Times
DATELINE: NAPLES, ITALY                                LENGTH: Medium

PLAYING POKER: CLINTON SAYS ECONOMY IS ALL ACES

President Clinton often has been accused of timidity in foreign policy, but the policy on the dollar that he articulated at this year's economic summit meeting is about as gutsy as anything he could do these days, short of invading Haiti.

When all the oratory is stripped away, the president has essentially looked the world's currency traders in the eye and said to them, "I dare you."

That dare is embodied in Clinton's argument that the U.S. economy is as healthy as ever, that inflation is well under control and that the currency markets have to some degree undervalued the dollar.

For those reasons, the president said, if at all possible he is not going to prop up the dollar.

He said he does not want to see the Federal Reserve Board raise interest rates to support the dollar, because that would needlessly dampen domestic growth, and he is counting on the markets to eventually recognize the fundamentals and stabilize the dollar at a reasonably strong value.

He is also betting that this process will take place without any serious long-term negative effects on the American economy.

As bets go, they don't get much bigger. If Clinton and his advisers are right, some speculators who have been dumping dollars by the bushel are going to lose money.

If he is wrong, the dollar, and maybe stocks and bonds, are in for an interesting ride.

The last world leader to take on the currency markets in such a brazen way was Prime Minister John Major, who declared in 1992 that the British pound would be devalued only "over my dead body."

Currency traders took up the bet, hammered the pound down by 15 percent and left Major's body as roadkill on the global investment highway.

In fairness to Clinton, the pound was overvalued and the American economy today is in much better health than Britain's was then.

But how much better? Americans will soon find out, as currency traders and the president engage in a fundamental test of wills over whose assessment is correct.

Many speculators have argued that a lot of fundamentals point to a weaker dollar: Japan and Germany are coming out of recession, which means interest rates there are likely to rise, making investments there more attractive and increasing demand for their currencies.

In the United States, strong employment numbers from the Labor Department suggest that inflation might soon rise. The trade deficit with Japan is heading for another record this year. And maybe most important, there is no sign of a Japanese government that is ready or able to deal with the endemic trade surplus.

by CNB