WASHINGTON -- Maybe the dollar bashing in foreign exchange markets is not the big problem it's cracked up to be.

Certainly, everyone seems to have a different set of reasons to explain the dollar's drop.

One explanation that circulated on Wall Street trading floors was that exchange markets had lost confidence in President Clinton's global leadership abilities. The President, it was said, was waffling on policy from Haiti to Korea. One day he was risking war with Pyongyang, and the next he was tacitly supporting a weaker dollar to wring trade concessions from Japan.

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Halfhearted Support

It is true that Clinton's aides did not handle the jittery dollar with polished international skills. When the greenback got hammered in June and the Bank of Japan intervened to prop it up, U.S. voices were silent.

Then, when U.S. authorities finally did coordinate a central bank effort to buy dollars around the globe on June 24, Treasury Secretary Lloyd Bentsen's comments of support came across as halfhearted and late. It was a clumsy effort.

But blaming a rudderless White House for the dollar's weakness stretches the point. Governments of other major industrial nations, especially Japan, are weaker and hobbled with problems of their own. In the case of Japan, the election of a Socialist-led government raises serious questions about whether Tokyo will be able to proceed with the tough task of creating a consumer society open to U.S. imports.

Moreover, in terms of the U.S. economy, Mr. Clinton cannot be denied his due for presiding over a healthy expansion that has cut the unemployment rate to 6% while businesses have poured capital into plant and equipment. At the same time, the President has refrained from picking a fight with the Federal Reserve while it raised interest rates to contain inflation.

Uncertainty About Fed Moves

Barry Bosworth, an economist at the Brookings Institution, says blaming Clinton for the weak dollar is misguided. "Nobody should have gotten so excited by this effort by Wall Street to sucker the government into thinking this is somehow a vital economic issue. What counts is to maintain the U.S. economic expansion without getting inflation, and in that sense things look extraordinarily good."

Mr. Bosworth says the dollar's weakness stems in part from speculation about U.S. inflation and uncertainty about how much the Fed will raise rates.

He and other analysts also cite reports that Japan and Germany are experiencing economic upturns, stirring expectations that they will raise their interest rates and attract capital away from the United States.

Japan's trade surplus, which reached nearly $60 billion with the U.S. last year, is part of the problem because Japanese companies keep piling up dollars earned abroad and converting them into yen. As the price of the yen is pushed up, Japanese consumers are denied imports.

According to the textbooks, a weak dollar adds to U.S. inflation by boosting the cost of imports. But Japan accounts for most of the U.S. trade deficit. Against some major trading partners, notably Canada, the dollar is actually stronger.

The Bond Buyer is a sister publication of the American Banker.

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