INTERNATIONAL ECONOMIC NEWS
1985
10 April
The US Congress votes to pass a resolution that calls upon the White House to take steps against Japan for its failure to comprehensively lower tariffs. Prime Minister Nakasone protests the move, stating that the overvaluing of the US dollar and cultural barriers are the cause of the growing US trade deficit, not tariff protections.
11 May
President of France, Francois Mitterrand, blocks an early date for commencement of the new round of trade liberalisation negotiations on the General Agreement on Tariffs and Trade. He insists that any trade changes are linked to a conference on reform of international monetary policies early in 1986 and that piecemeal negotiations would risk shredding the multilateral system. Mitterrand’s speech, given at the G-7 Conference, also reveals the opposition by France and Italy’s Prime Minister, Benedetto Craxi, to any agreement that will allow European nations to participate in research on the Strategic Defence Initiative. Japan comes under attack from all parties for its continued resistance to opening its markets, and France is accused of failing to restrain damaging currency fluctuations. US Treasury Secretary James Baker states that the United States has become the sole engine in the world economy, but that US growth is headed below three percent, and his economic partners need to lift their performance. In return, the meeting agrees to criticize the United States for allowing its dollar to become over-valued.
9 August
Japanese Prime Minister Yasuhiro Nakasone announces the removal of tariffs on nearly two thousand products and the opening of access to Japanese patents for foreign inventors. Despite initial optimism, it is revealed that the government is only pledging to implement this, if they believed the conditionals are right, by the end of 1988. That same day, Senator John Heinz (R-PA) announces that the US trade deficit is likely to be in excess of US$160 billion this year, and that the deficit with Japan would be about $55 billion.
14 August
The US Court of Appeals rules that, by year’s end, the US Administration must order Japan to reduce its catch of fish in US waters by two-thirds (about one million metric tonnes). Additionally, it rules that economic sanctions must be applied to Japan, under US law, if Japan has not ended all whaling enterprises by 1988.
16 September
Mexican President Miguel de la Madrid Hurtado admits publicly that there is tension between his government and US-based banks. Mexico has been formulating a coalition of debtor nations, including Brazil, Peru, Argentina, Zambia and Nigeria, to oppose new IMF regulations. They are supported by the Cuban Ambassador to the United Nations, who states that the “dysfunction of the Cold War should not be a burden to a new era of peace. These debts, we know it, are morally unpayable”. The group will become known as the Lima Group.
17 September
Federal Reserve Chairman Paul Volcker states that there will be no new lending for any Latin American or African country which carried through on the Peruvian strategy of unilaterally rescheduling their national debt. This is an attempt to counteract Mexico’s emerging Lima Group of Nations.
19 September
President Fidel Castro of Cuba undertakes a five-day visit to the Soviet Union to lobby for Soviet funding for Latin American countries currently facing a credit freeze. Secretary General Gorbachev states that, with the USSR facing considerable economic reform, it cannot agree to a line-of-credit for the Lima Group of Nations. He does, however, agree to make half of any future Soviet dollar reserve, held in the Soviet International Investment Bank, available for lending on terms. By year’s end, the Soviet government will lend about $800 million in dollars, pushing the weakening dollar down another 0.6% over the coming months.
US Secretary of the Treasury, James Baker, formally warns President Ronald Reagan that continuing huge deficits will inevitably fuel inflation and push up interest rates. He states that such a situation would cripple growth. Reagan responds by launching a public tirade against Japan and the European Community for trade discrimination and threatens retaliatory measures.
27 September
Senator William Cohen (R-ME) and Senator Ernest Hollings (D-SC) cosponsor a bill to raise tariffs in such a manner as to cut imports of textiles by between 25% and 40%. The House Ways and Means Committee Chairman, Dan Rostenkowski, continues to push for an across-the-board 25% tariff against Japan, Taiwan, South Korea and Brazil, winning support from Senator Lloyd Bentsen (D-TX) and Congressman Richard Gephardt (D-MO). US President Ronald Reagan again threatens his veto, arguing that this is reminiscent of the high-tariff era that contributed to the Great Depression of 1929-32.
2 October
West German Chancellor Helmut Kohl publicly calls upon the US Administration to move from a preference for freely-floating exchange rates to managed exchange rates. The Bundesbank is unimpressed by a loss of $4 billion experienced as a result of its participation in a G-7 Stability Fund designed to push down the value of the dollar. The fund’s failure has also cost Washington over $600 million.
11 October
The International Monetary Fund revises US exposure to Latin debt downward, by a massive $130 billion, but warns that the debt load has cost over one million manufacturing jobs in the United States due to a downturn in purchasing by Latin America. Treasury Secretary James Baker admits that his nation finds a “rising tide of resentment” from beleaguered borrowers. He also pledges to strive to devise a plan that will “defuse the debt bomb”.
17 October
During his address to the UN General Assembly, Soviet Secretary General Gorbachev proposes a global nuclear test ban treaty, but it is categorically rejected by the US. He also calls for fundamental reforms to the United Nations and other international institutions as part of a post-Cold War world, but expresses a belief that “economic consensus may need to precede political consensus”, pressing the projected 20% cut in various trade barriers, with a pledge to cut them by a further 10% over the next four years.
19 November
The International Monetary Fund states that the downturn of the US economy has, in turn, impacted the export economies of Asia: Taiwan’s growth has halved and Singapore is close to recession. These are the best two performers – Japan, Hong Kong, Malaysia, Thailand and New Zealand are all facing further declines. Expanding US debt prevents any rescue as, since March, the once-powerful US dollar has dropped 17%, most of that in the last eight weeks. The IMF warns against a panicked protectionist response.
10 December
There is some panic buying of oil futures on various international exchanges in relation to the so-called “Hormuz Crisis”. Analysts state that the future depends upon Iran’s response to international calls to allow outsiders to enter her waters. However, with the recent deal by US politicians on tax and the passage of Gramm-Rudman to place a fiscal straight jacket on Congress, there is confidence in the business community.
16 December
The Dow Jones Industrial Average passes through 1500 for the first time in its history, reflecting confidence that the Hormuz Crisis will be swiftly resolved. Iran has projected that it will have Kharg facility back online within three weeks.
1986
21 January
Japanese Prime Minister Yasuhiro Nakasone visits Ottawa, asking Prime Minister Brian Mulroney to consider carefully the impact of a free trade agreement with the United States on terms of trade and the breakdown of the multilateral system. He is assured by Mulroney that there will not be a “new breakout of protectionism”.
President of Peru Alan Garcia Perez hosts the first meeting of the Lima Group. In just six months, he has become one of the most influential, articulate and admired leaders in Latin America. He states in his opening address that the Lima Group is not attacking the United States, but ensuring economic justice. He calls the IMF “incoherent and colonial” and demands reform.
23 January
The International Coffee Organisation, the 75-member multinational cartel, meets in London to discuss the drought in Brazil. Having wiped out the coffee crop, it is expected to push international wholesale price levels up to near $4 per pound.
28 January
The decision by Britain, Norway, Mexico and Saudi Arabia to increase oil output has forced the price of petroleum contracts to begin to decline, despite the Hormuz Crisis recently showing the vulnerability of the oil industry. Since November, the price of oil has declined by 18%. Oil analysts are expecting the price to continue to decline in the medium term. Mexico, Nigeria and Venezuela all warn that a price collapse in oil will lead to further defaults on US-denominated debt.
6 February
Ministers from Mexico, Nigeria, Venezuela, Saudi Arabia, Iran and Libya meet together at Cancun to discuss the falling price of oil. This sudden unannounced meeting produces a communiqué which expresses “profound concern about the extreme instability” of the oil price. The de la Madrid administration states that the fall will cost it over US$600 million this year alone and warns that disastrous consequences will follow if the price continues to fall.
11 February
Oil ministers from OPEC meet in Vienna to discuss the falling price, and the shrinking share of the market allocated to their cartel (38% of international output, down from 63% in 1979). While the falling price has pushed the Dow Jones toward 1600 for the first time, the United Arab Emirates recommends a further cut in output from 17.5 million barrels per day to 16 million barrels per day over the next year, a cut of over nine percent, as well as a price floor.
12 February
The announcement of a planned cut by OPEC triggers a gradual stabilisation in the price of oil, strengthened by the decision to place a price floor on the oil price at today’s price of $20.60 per barrel. It will refuse to sell oil below that price, arguing that non-OPEC members will be unable to sustain sufficient supply and the West is still partially dependent upon their oil. Instead, over the next few years, OPEC’s share of the world market will fall to just below 30% with increased production by non-OPEC members.
24 February
Hoping to avoid a trade war, Prime Minister Yasuhiro Nakasone of Japan pledges to impose quotas on all products being exported to the United States. Japanese goods are starting to become more expensive in the United States, thanks to the falling dollar.
27 February
The Brazilian government, acting on foreign advice, ends the price freeze. This is to prevent black market activity and shortages caused by an artificial lowering of prices. They also declare firm membership of the Lima Group for renunciation of “illegal debts”. The full membership of the Lima Group is: Argentina, Brazil, Honduras, Libya, Nigeria, Peru and Zambia.
The Bonn government announces an upgrade in its growth projections for West Germany this year, up from 2.5% to 4.0%, the result of falling oil prices and the lower greenback. The twin slide is boosting the economy of France as well, which is now predicting a trade surplus and an additional $6 billion of economic growth.
9 March
Mexico, Uruguay and Venezuela join the Lima Group in an event that shatters world banking markets. Mexico is dealing with the double hit of the earthquake and the oil price collapse, forcing President Miguel de la Madrid Hurtado to declare that “the belt can be tightened no further”. The Lima Group state that the debt is crippling their economy and stirring unrest, and they demand substantial renegotiations, including halving current interest payments over the life of the loans. The Lima Group states that the Baker Initiative was full of great intent, but insufficiently funded to achieve outcomes.
30 March
The falling US dollar forces Japanese Prime Minister Yasuhiro Nakasone to offer assistance to Japanese exporters and order the Bank of Japan to begin buying dollars as the yen reaches 150 for each US dollar. The attempt to avert a trade war with the United States has now become excessively expensive for the Japanese government, but US economists state that the dollar must continue to fall against the yen if US business hopes to gain competitiveness.
4 April
US Secretary of State George Schultz opens talks with members of the Lima Group, stating that the US is willing to assist financing the rescheduling of $29 billion (out of $350 billion in total debt) “under certain conditions”. Mexico is named as the most likely defector, with rumours that the US Administration will absorb up to $1 billion in costs in order to get Mexico to return to the international debt market. Mexico states that such an offer will not solve the crisis and total Third World debt will reach a trillion dollars by year’s end under the current system with compounding interest.
13 April
After nearly twelve months of standoff, the Lima Group suggest a May summit with the Americans to discuss the rescheduling of international debt obligations and the terms of debt relief, as well as long-term stability for the international economy. It is agreed that such a meeting will be held in Colombia in a little less than a month. Twenty-one countries are confirmed attendees.
17 April
US Vice President George Bush addresses rumours that the US is preparing to accept a price floor on oil, in return for long-term stability. “Stability in the price of oil is important to our own domestic interests and in the interests of national security,” he states. President Ronald Reagan backs up his deputy, stating that the Administration may be prepared to deal with the temporary political costs to ensure a healthy domestic energy market. “This may represent an unparalleled opportunity to ensure long-term financial stability.” Nonetheless, Bush is criticised for failing to reach a deal with the Saudis to break the OPEC barricade. Britain and Norway are both selling oil far below the international floor price and are a tad annoyed, feeling they are subsidising US consumption.
18 April
The French tourist industry complains that international travellers are going to the Mediterranean, the Caribbean or charter tours to Eastern Europe. The fall of the dollar is making international travel more expensive for Americans, and the low cost of fuel is boosting the US domestic tourism industry. It is estimated that the cost to Western European markets will be $5 billion this year.
29 April
Arriving in Tokyo ahead of the G-8 Summit, US Treasury Secretary James Baker admits that increased Soviet purchases of goods from industrialised economies is assisting growth, with an additional estimated $16 billion in consumption in the USSR. The dollar appears to be coming back to about 163 yen. He expresses concern about the failure to achieve an outcome with the Lima Group of Nations.
4 May
The G7 meeting in Tokyo, Japan, is begun with good news. US Secretary of Treasury James Baker announces that inflation has fallen once again in the United States during March and it appears as though US inflation has dropped below 2%. This increased growth, falling inflation economy is appearing to be taking up momentum in Western Europe and Japan as well. The members agree to issue a statement condemning “state sponsorship of terrorism”, with British Prime Minister Margaret Thatcher taking the lead, backed by US President Ronald Reagan and Canadian Prime Minister Brian Mulroney, but Italian Prime Minister Bettino Craxi insists that Libya should not be named directly. It is also agreed that currency fluctuations are out of control and that government should be permitted to intervene to keep their currencies within a particular range.
7 May
Bolivian leader, General David Padilla, commits his country to the agenda of the Lima Group as the only solution to his national debt crisis. There are now two factions forming within the Lima Group of Nations: the first group is behind limiting debt repayments to a percentage of exports; the second group support the more radical idea of debt renunciation. Price controls on key commodities emerge as a strong unifying theme.
30 May
While trying to block most of the Congressional “protectionist overkill” in new US trade law, President Ronald Reagan upholds a tariff for forestry products industries in the Northwest. Canadian Prime Minister Brian Mulroney calls the action “bizarre and yet appalling”, “pure self-interested protectionism”.
14 July
World Bank Chairman Paul Volcker states that the debt burden internationally, despite falling interest rates, cannot be relieved simply through austerity measures. He also expresses concern over what he calls “a move from project lending to policy lending” by the US Administration under his predecessor, arguing that the World Bank should not become involved in domestic policy debates of debtor nations and that the crisis of debt cannot be resolved “with a rabbit out of a hat”.
15 July
Chinese leader Deng Xiaoping officially announces that the Peoples Republic will, in a proposal similar to the Soviet Union, seek a conference to remake the General Agreement on Tariffs & Trade into the International Trade Organisation, a unified set of agreements with a lead-in period under transitional programs created by the government of the country being admitted. Both China and the Soviets, backed to some degree by France and Japan since the collapse of the Uruguay Round, have been seeking a new deal, and US Vice President George Bush is said to be pushing President Ronald Reagan toward signing on to begin what he hopes will be the first truly international trade agreement, even if it will take many years to achieve. Reagan agrees to go with the idea, but insists that the USA should create the ITO as an organisation separate from GATT.
16 July
A Soviet trade delegation arrives in Japan to meet with returned Prime Minister Yasuhiro Nakasone. The visitors are keen to obtain Japanese loans for plants and equipment, arguing that Japanese capital and Soviet resources provide the opportunity for unique synchronicity. In future times, this event will be seen as the beginning of the rapprochement between the Soviet Union and Japan.
22 July
The Soviet Union settles its largest outstanding bond issue, issued by the Czarist government to the Edwardian Britain. These bonds are collector items, which have sold for, at most, 3% of face value. In return for a gold transfer of $1.35 billion, the USSR gains the right to participate, for the first time, in the capital markets of the London Stock Exchange. At the same time, the Soviets admit their efforts to break into the market in the United States have been hampered by anti-American rhetoric and they will be moving their efforts at financial investment to Europe. The Soviet International Investment Bank will divided into two banks become Union Bank International and the Soviet Credit Bank, both under the command of Gosbank. The former will issue further Soviet bonds, while the Credit Bank will undertake retail services at a national level.
3 August
The Lima Group holds a conference in Mexico City (Argentina, Bolivia, Brazil, Colombia, Cuba, Honduras, Libya, Mexico, Nigeria, Peru, Uruguay, Venezuela, and Zambia). There is a push by some within the organisation, with talks still ongoing over debt with the US Government, to undertake other commitments to show good faith. The Honduran, President Jose Simon Azcona del Hoyo, provokes an agreement that all members will cease to give assistance to any irregular forces within five years. He also announces that Nicaragua has decided to join the Lima Group on that basis.
5 August
Janos Kadar, General Secretary of Hungary, is requested to take over as Chairman of the Executive Committee of the Council for Mutual Economic Assistance (COMECON). He is charged with the task of “enlargement”, including the invitation to the Peoples Republic of China to return as an observer, and developing programs for full membership for Nicaragua, Angola, Mozambique, Ethiopia, South Yemen and Laos to become full members. There will also be an “open door” policy towards Yugoslavia. Kadar will retain his position as General Secretary. The move is also seen as a Moscow endorsement of “goulash Communism” and openness to Western social democratic parties.
6 August
The Soviet Ambassador to the United States, Alexander Bovin, approaches the White House to purchase wheat, stating that the restructure of much of the Soviet agricultural sector is still ongoing and that this is interrupting basic food supply. He demonstrates Soviet government figures showing projections of 40% take-up of “new enterprise” structures among formerly state-owned agricultural collectives by the end of 1987. Agreement helps the US get rid of some of its stockpile and raises food prices marginally around the globe.
14 August
OPEC announces that they will cut production by 17% over the next two months, clearly hoping to justify their continued price controls on oil. Iran and Saudi Arabia are credited with the construction of the deal, with the Venezuelan and Mexican representative showing particular pleasure that their price floor will be maintained.
16 August
The Soviet Union and other COMECON members agree to commit $17 million in aid to the United Nations Food and Agriculture Organisation, requesting preference be directed to Botswana, Chad, Mauritania and Sudan, all of which are currently experiencing plague locusts.
20 August
It is confirmed by the White House that the Administration has opened negotiations with the Lima Group, with Mexican President Miguel de la Madrid stating that President Reagan had permitted him, as representative of the Lima Group, to set out the group’s position. Reagan states publicly that “we will extend a hand where it is possible to do so” without risking the US financial system.
23 September
The Uruguay Round of the General Agreement on Tariffs and Trade commences, with focus on agricultural subsidies and restrictions on trade in services, dealing with $2.4 trillion in world trade. First time attendees, the Soviet delegation announces that, at year’s end, the Kremlin will reduce tariffs on items affecting just over $13 billion worth of goods and that, on 30 June 1987, it will lift tariffs on a further $7.6 billion in trade. They also pledge to implement anti-dumping by the end of 1990.
28 September
Egypt, Libya, Sudan and Chad commence negotiations on use of water from the Nubian Aquifer system, with the Soviets promoting to UNESCO a massive project to create vast agricultural regions in those countries. Gorbachev announces that the Green Corps will provide volunteer labour in any country that requires it to rehabilitate desert areas in the four countries by 2030.
13 October
US Treasury Secretary James Baker caps weeks of intense negotiations with the Lima Group nations, bypassing the International Monetary Fund. He states that he is proposing the World Bank suspend payments on about 45% of debts, all longer-term borrowings. They will then be recalculated at the London Interbank Offered Rate, plus 0.6%, over the life of the loan and rescheduled to be repaid over twenty years. Moreover, the size of the available debt pool for new credit will be expanded by 6.3%. There is hope that the matter may finally be close to a resolution, as Mexican President Miguel de la Madrid signals his government’s intention to take the deal.
23 October
US Vice President George Bush admits that he had knowledge of the recent CIA mission in Nicaragua, earning him significant condemnation by El Salvadoran President Jose Napoleon Duarte, who suggests that the US Administration can afford “pointless, expensive and provocative violations” of other countries, but will not spend anything to resolve the ongoing debt crisis. Duarte also uses the opportunity to attack Mexico over its bilateral negotiations with its debtors, arguing that the Lima Group will survive without Mexican support but that they have betrayed the principles of the organisation to hold out for a multilateral agreement.
21 November
Peruvian President Alan Garcia Perez announces that inflation in the Lima Group of Nations has fallen from 184% to 59% and that growth is averaging 5.5%, the best performance by any of the member economies in more than a decade. In terms of Peruvian debt, according to US statements, it has added a further $630 million in interest. Buoyed by recent regional elections, Garcia states that the Lima Group is willing to open negotiations with US Secretary of the Treasury James Baker.
1987
6 January
The US trade delegation, led by Clayton Yuetter, walk out of talks with the European Community. French Prime Minister Simone Veil warns that the United States “has turned brinkmanship into the dominant form of discourse in international affairs” and notes that the United States is in dispute with Japan, Brazil, Canada and others. The origin of the dispute is Spain’s closure of US corn and sorghum markets since joining the Community.
18 January
Soviet Premier Mikhail Gorbachev announces the opening of trade negotiations between COMECON and GATT, just two weeks after the opening of full access of West Berlin by East Berliners. Soviet foreign investment has risen by thirty percent in the last year and US Vice President George Bush, who supports the talks, states that opening up international trade has become the Administration’s top priority for its final year of legislative opportunity (before the primary season kicks in). Gorbachev also provides Bush with list of “minimal worker protections” that he would expect to open Soviet and Eastern bloc nations. These ensure that foreign companies must negotiate wage agreements with the central government. They must not discriminate or use compulsory labour. They must provide equal pay for equal work and work people no more than 48 hours per week.
20 January
US Commerce Secretary Malcolm Baldrige warns that the United States is on the verge of a trade war with the European Community, unless the Europeans are prepared to talk to Washington about loss of US grain markets in Spain and Portugal. The Europeans promise to retaliate and suggest that nothing will change unless the US is prepared to rein in its borrowing.
25 January
US Vice President George Bush meets with Jacques Delor, President of the European Commission, in Brussels, seeking to ensure that there is no fallout over the issue of grain markets. He emerges without an agreement.
8 February
A report by the OECD on foreign aid concludes that, despite decades of foreign aid, sub-Saharan Africa has failed to improve in terms of income per capita over the last quarter century. This will be used by the US Congress to justify cuts to foreign assistance that are necessary to meet budgetary aims.
A meeting of West European finance ministers confirms that the region will grow at a solid but unspectacular 2.7% this year, up from 2.3% in the preceding year. It shows that there is potential to avoid the impact from the fall of the dollar. British Chancellor of the Exchequer Ken Clarke states that the fall of the pound has held down prices and stimulated exports, predicting 3.2% growth in his country, versus 2.5% in West Germany and France. All the major economies in Western Europe have projections of between 10 and 12 percent unemployment. Italy is the exception, projecting a 4.3% growth rate due to a runaway budget deficit amounting to 15% of GDP.
10 February
The price of a barrel of oil stabilises at $19.80, slightly below the OPEC threshold and most analysts predict that the price has finally stabilised after a year of roller-coaster fluctuations. One sign of the stability is a six-month contract signed between the US and Saudi governments, which allows the United States to have a fixed price.
26 February
In preparation for a new currency plan, President Jose Sarney of Brazil announces that his country is suspending payments of interest on foreign debt and will, in future, make payments on principal only. He calls on Argentina and Mexico to join him, threatening to inflict nearly $265 billion in losses on the US banking system. He states that the failure of the Lima Group to reach a deal with the American banks, dwindling currency reserves and deepening economic stagnation make the situation unavoidable.
6 April
US President Ronald Reagan talks about the trade deficit, imposing on Japan the toughest sanctions since World War II, but he expresses hope that Japan will return to compliance with its treaty obligations. He tells the press that “I do this in sorrow, not in anger”.
8 April
US banks announce that, given ongoing delays in Latin American repayments producing a “non-performing loan” status, they will be forced to raise their commercial rates by a quarter of a percent. The Administration states that the action is inevitable and, according to Treasury Secretary James Baker, shows that the US financial community has the strength to withstand the current ongoing debt crisis.
14 April
Members of the G7 gather in Washington to discuss concerns about the growing trade standoff between the United States and Japan, as well as the Lima debt crisis and the continuing fall of the US dollar, which is now at ¥138, its lowest level in 40 years. There is ongoing concern about US inflation, with 30 year bonds reaching 8.43%. The concern has moved into the stock market, with the Dow Jones closing today at 2268.61 (down from a high of 2319. 67 last week).
24 April
Market analysts note significant increases in the prices of gold and silver, with silver up by 80% in the last four months. Mutual funds state that the price increases relate to the extended bull market and the flight of money from South Africa seeking investments elsewhere.
5 June
US President George Bush states that next week’s G7 summit in Venice will focus on how to reduce US indebtedness and to boost economic growth concurrently in all economies. He also warns Wall Street that massive rises in the price of shares are unsustainable, pointing to the Dow Jones close yesterday of 2222.83, which, while 80 points below peak, is still well above price-to-earnings ratios. Nonetheless, he points to two positive indicators: 1) the US current account deficit is progressing downward, falling from $173.5 billion last year to an expected $153.2 billion this year and 2) the budget deficit will fall from $228 billion last year to a projected $167 billion this year. He praises Japanese efforts at stimulus, but calls on West Germany to increase government spending to increase capacity.
24 June
For the first time in 17 months, the price of oil has risen above the $20.60 benchmark, and the amount of oil being pumped has risen above the OPEC official production ceiling. Market analysts state that the price has risen due to the instability of supply in Iraq’s oil.
1 July
The European Community announces an objective to establish a single market by the end of 1992, the first major revision of the Treaty of Rome. European Commission President Jacques Delors states that the next few years will be occupied with formulating a common European monetary policy, eliminating exchange controls and establishing convergence criteria for a single EC currency.
9 July
US Treasury Secretary Nicholas Brady states that the federal government will take some of the cost of default in the sovereign debt market through the creation of new bonds. Argentina, Brazil, Mexico, Nigeria and Uruguay will be the nations receiving the benefit of debt forgiveness and considerably lower repayments; other members of the Lima Group are given no immediate benefit.
11 July
US Treasury Secretary Nicholas Brady meets with French Finance Minister Raymond Barre. It is believed that the two are working on the Paris Club members to eliminate $63 billion in uncollectable debt obligations. Meanwhile, the surviving members of the divided Lima Group gather (Bolivia, Colombia, Cuba, Ecuador, Honduras, Nicaragua, Peru and Venezuela, as well as Libya and Zambia). They agree to become a club dedicated to changing international economic relations and promoting non-interference in other states. This re-definition will see it gain Costa Rica, the Dominican Republic, Bulgaria, Egypt, Morocco and Poland join as members.
6 August
The Lima Group announces that, in order to prevent capital flight, they have reached an agreement for the nationalisation of all banking and insurance companies and will shut down private currency-exchange houses. Selling dollars becomes a criminal offence. Both BankAmerica and Citicorp express their dissatisfaction.
7 August
French Premier Simone Veil and West German Chancellor Helmut Kohl express concern about the ability of their countries to continue their record high consumption of US products. Kohl warns that the West German economy is contracting at a rate of 0.5% this year, while France’s growth rate has fallen to 1.3%. Veil claims that the US demand for capital to fund its deficit is driving up interest rates in Western Europe, and warns that the impact may soon spread into Britain and Italy.
18 August
Japanese company Toshiba is offered a $208 million contract with the Soviet government for a partnership with their new state-owned monopoly enterprise, Union Telecoms. The deal is for one hundred eighty thousand laptop computers.
4 September
The President of Peru, Alan Garcia Perez, states that the banking nationalisation program by the Lima Group countries is neither “retaliation” nor a “totalitarian threat”. He suggests instead that capital will now be available for small businesses and farmers whom the banking industry has traditionally ignored. He expresses an expectation that public banking investment will have capacity to greatly increase competition and drive down prices.
10 October
At an IMF meeting, US Treasury Secretary James Baker suggests the creation of a global trading index, based on the worldwide prices of gold and other heavily traded commodities. He states that such an index would be a clear sign of global inflationary pressures. He also states it would provide a framework for a possible world currency which would not be subject to inflation and would ease barter practices. He suggests that both the USSR and China might welcome such a system.
18 October
US President George Bush and Canadian Prime Minister Brian Mulroney announce the establishment of US-Canada Free Trade Agreement. If approved by both legislatures, it outlines a plan to abolish all trade restrictions between the two countries and to create a common market over the next decade. It is estimated that the deal will, over that time, create a 3% increase in the labour market and boost the GDP of both countries (the US by 1% and Canada by 5%).
19 October
International markets crash on “Black Monday”, with the Dow Jones plunging 401.51 points, closing at 1808.44 points and wiping out all gains made this year. Blame will be levelled at insurance derivatives, stating they created a cascade effect which meant that, once the market began to fall, it could not stop. The 18.2% fall in market value remains the largest fall in percentage terms ever and will remain the largest fall in points for over a decade. It starts in Sydney, Tokyo and Hong Kong, where Asian markets demonstrate gloom and uncertainty and the latter will experience its worst day on record. Many London dealers failed to make it in after the storms, compounding a backlog in orders and creating greater panic. By the time the wave hits New York’s mid morning, the volume of shares being sold has hit new records. At midday New York time, West German Bundesbank President Karl Otto Pohl announces a cut of interest rates by 50 basis points to stabilise the market. This turns into temporary hope, as the market resumes its run and a story leaks from the SEC that the NYSE is to be shut down. At 3:50pm, White House Chief of Staff Kenneth Duberstein states that President Bush has been briefed and that the market will close in ten minutes.
20 October
The Tokyo Stock Exchange closes after just half an hour as the Nikkei Index falls 14.6% in a downward spiral. Later in the day, the trading floor at the Palazzo Mezzanotte in Milan will cease deals after falling 10% in just an hour. In London, the FT-100 plunges 304 points before it is closed at midday. As the market opens in New York, Federal Reserve Chairman Walter Wriston announces a further 25 point cut in interest rates, reducing the discount rate to 5.25%. Afternoon trading is positive, with the Dow Jones ending the day up 131.49, with a total of 1939.93 points.
21 October
Markets in Tokyo and London bounce back, followed by New York. The Dow Jones climbs again, closing the day with its largest single-day climb at 240.22 points. The index now sits at 2180.15 points. Over the last nine days, the market has experienced an enormous roller coaster ride. Accordingly, the NYSE announces that it will close three hours early every day until the market stabilises.
28 October
Soviet leader Mikhail Gorbachev gives an address regarding the state of world capitalism. He states that Western governments have become “the hostage servants of markets” and that they have “little to no appreciation of the dangerous power of this thing they have created”.
6 November
US President George Bush admits that the USSR has expressed a firm interest in the establishment of an international commodity-backed currency for trade purposes, first floated by Treasury Secretary Brady on 10 October. He states that a “prudential regulation of international trade involving all countries” would be “the most significant step in trade since World War II”. He also welcomes the decision of the Soviets to open relations with Israel as the measure which will allow greater trade links between the US and the USSR, and opens real potential for the establishment of a “Global Trade Organisation”.
13 November
US President George Bush “finds” that trade boycotts on Japan are no longer necessary and orders the immediate repeal of one-third of the trade penalties applied by his predecessor against Japan. He states that the remainder will be removed when an agreement can be reached with Japan that will force open its markets to US-made semiconductors.
10 December
The leaders of the two superpowers announce that they have agreed to open talks on standards and regulations for the formation of a Global Trade Organisation (the GTO). Premier Mikhail Gorbachev states that the USSR made a “fundamental mistake” in its failure to participate in the post-war economic settlement. He states that Stalin should bear responsibility for dividing the world economy into “antagonistic blocs” and suggests instead that the potential exists for a “cooperative partnership of peace and prosperity”. US President George Bush states that the OECD will immediately begin development of a position for the West.
21 December
On the second last day of sitting for the year, the US Congress approves the US-Canada Free Trade Agreement. President George Bush and Prime Minister Brian Mulroney both declare their great satisfaction that the Agreement will become active soon.
1988
29 April
An early copy of the planned May Day address by the Soviet President is circulated. It outlines plans to further perestroika by allowing foreign companies to trade in the CSSN. President Mikhail Gorbachev states that current trade regulations are “implicitly unfair, designed to strip the environment and the rights of workers”, but arguing that to open trade without regulation allows “piracy”. He again calls for a Global Trade Organisation, specifying it should act as a licensing agency, to which any global corporation would have to apply to operate across national borders. This license would allow a corporation to operate anywhere in the world provided they can agree to abide by currently voluntary guidelines issued by the OECD, the International Labour Organisation and the United Nations Commission on Human Rights. These regulations would force full-cost accounting, prevent international monopolies and make companies responsible for the actions of their subsidiaries.
3 May
With Japanese couples picking up the Western tradition of diamond engagement rings, De Beers announces that the price of diamonds will be forced to rise by 13% to reflect growing demand
5 May
Union Bank International confirms that it has purchased nearly 2% of Nestle, the Swiss chocolate giant. It is part of a program by the bank to take small stakes in a diverse range of international companies.
6 May
In talks on the international economy, Soviet President Mikhail Gorbachev points out that Japan reached the ability to compete internationally through government support and protection of industry. He insists, as part of the transformation of the Soviet economy into a globalised market, that the Soviet Commonwealth should be allowed to follow the same course of action. He suggests that, rather than insisting upon open markets, the United States would negotiate a specific share of particular markets and leave it up to the country with whom it is negotiating to worry about how to achieve that goal. US President George Bush states that the Soviet ideas on global economic integration are “vague” but “thought-provoking”, and “worthy of further consideration and analysis”. He also states that the idea of a Global Trade Organisation, now raised twice by Gorbachev, is “enticing” and one he hopes that the next Administration will pursue, “regardless of November’s outcome”.
9 May
OPEC ministers meet with representatives from seven non-member countries regarding measures to cut oil production and reduce the persistent oil price slump, but not to such a degree as to encourage customers to move into signing contracts with the Soviets. The price of oil has climbed and is currently sitting at $19.20, about $1.40 lower than the Soviet benchmark price.
26 May
After a meeting with representatives of Mexican coffee farmers, the Soviet Commonwealth agrees to establish a fixed price for coffee similar to that established for oil. The price of coffee will be pegged at $1750 per tonne until December, 2000, with provisions that, to obtain the price, employees have a collectively-organised workforce and an elected body of workers to decide how the premium, the price above the cocoa market price, will be spent. The action is criticised by the West as an attempt to export Communism to Mexico and destabilise the attempt to create a new International Coffee Agreement (ICA). The price paid is nearly US$500 per tonne above the market price and, partly as a result, the ICA will collapse in July next year.
16 June
Canadian Prime Minister Brian Mulroney, who is due to hold a meeting of the G7 later in the year, suggests a multilateral agreement to maintain stability in currencies fluctuations by limiting movement to specific ranges. He also states that the nations involved will need to commit to a reduction of agricultural subsidies and debt forgiveness for heavily indebted nations.
29 July
Analysts predict that the price of a barrel of oil will be $24 by the end of next year, claiming that the Saudis will decide to wind back production. There is a massive increase in the purchase of futures in Soviet oil as a result, which, at a guaranteed price for the next twelve years at $20.60 per barrel, represent a considerable saving.
7 August
The Nikkei index overtakes the Dow Jones to become the largest investment market in the world. Western analysts express concern that price to earnings ratios are, on average, sixty to one, four times those in New York. In the worst case, Nippon Telegraph and Telephone, is trading at 160 times its earnings. Financier George Soros warns that there is no past example of “a bubble of this magnitude deflating in an orderly manner” and expresses fear that the Nikkei will eventually have to collapse.
8 August
Nomura Securities, the largest and most profitable trading house in the world, pays $20.6 billion to buy a ten percent stake in New York’s Citicorp. It is suggested that, long term, Nomura hopes to merge with the US giant. Their combined assets would be close to $600 billion.
16 August
Media entrepreneur Rupert Murdoch buys TV Guide for $3.3 billion, with many media commentators suggesting that he has paid too much for the magazine and arguing that the debt levels of News Corporation, his multinational empire, are too large.
3 September
Program trading, blamed as one of the primary factors behind last year’s stock market meltdown in New York, is abolished by the majority of trading houses after the conclusion of the Brady Inquiry. Only three companies will continue with the practice, Morgan Stanley, Merrill Lynch and Bear Sterns, and even then, the value of stocks traded by these companies in this way will halve in number from last year’s peak.
7 September
The Soviets announce that they have discovered a new oil field, called Kashagan, not far from its 1979 Tengiz discovery. It is not expected that the field will be producing until the end of the century, but construction begins immediately on a pipeline running over 2200 kilometres from the shore of the Caspian Sea to the Chinese border. The Soviets are also said to be heavily developing the Sakhalin Islands, having spent in excess of $1 billion, leading to speculation that oil has been found there also.
14 September
The benchmark price of oil begins to slide once again, falling to its lowest levels since early 1986 and hitting $14.75 before beginning to climb once again. Analysts say that the flow of oil from Iraq and Sumeria has now begun to recover, but also express a belief that Saudi Arabia and the United Arab Emirates have been exceeding OPEC quotas by nearly five million barrels per day.
22 September
Finance ministers from across the world meet in East Berlin for the annual meeting of the International Monetary Fund. While environmental and communist protestors gather outside, the ministers agree in principle that for the creation of a Global Trade Organisation. Representatives of the Council for Mutual Economic Assistance and the General Agreement on Tariffs and Trade agree on tariff cuts which will add $15.5 billion per annum to the world economy, and further cuts projected to add $40 billion to the world economy from 1991. In return for access, global rules governing corporate behaviour, proposed by the Soviet leader in May, will be implemented at the same time (January 1991). At that point, the two organisations will merge into the Global Trade Organisation, based around a global trade currency index touted by James Baker in October last year.
7 October
US Senator Bill Bradley (NJ) states that the much-hailed resolution with the Lima Group is starting to fall apart and hints that he has news that Brazil, Argentina and Mexico are, once again, about to defect back into the camp of the radicals. Despite some $63 billion in net debt repayments by its member nations, the debt of the group has grown by $250 billion in the last three years. Treasury Secretary Nicholas Brady states that Bradley is attempting to influence the upcoming US elections by creating fear about the economy and that his debt reconstruction plan remains strong.
24 October
Fellow OPEC members criticise Saudi Arabia, Kuwait and the United Arab Emirates for exceeding their oil quotas and putting downward pressure on the price of a barrel, which has now fallen to $15.67. It is suggested this could worsen the economic situation in Algeria, Mexico and the southern United States.
15 November
The International Labour Organisation proposes a 1977 document as the fundamental basis for developing worker standards applicable under the future Global Trade Organisation. Trade diplomats agree to adopt the Tripartite Declaration of Principles concerning Multinational Enterprises as one of three documents which will inform the regulations governing corporate behaviour under the GTO.
4 December
The Iranians agree to give up part of their oil quota to Sumeria as part of a broader OPEC deal to contain Saudi and UAE production. The review of quotas pushes the market price of oil back up to $18.70 per barrel, only sixty cents below the OPEC floor price. While OPEC and the Soviets continue to charge $19.30 per barrel, there is a realisation that allowing the market price to fall too far below the floor price leads to instability in revenue.
13 December
Outgoing US Trade envoy Clayton Yuetter admits, after talks in Montreal, that two years of talks on the Uruguay Round of GATT have ended in an inconclusive and bitter division between the European Community and the US. The chief issue is that, despite offers of cuts in farming subsidies, the two parties cannot agree on the degree or stretch of cuts.
1989
2 January
In the annual report from the Organisation for Economic Cooperation and Development (OECD), the group discusses, in detail, its guidelines for multinational enterprises in the context of a Global Trade Organisation. After some rigourous examination, this document forms part of the United State position in future negotiations.
3 January
Mexico’s President Alfredo del Mazo repeats history by stating that his country can no longer afford to pay its debts and will once again return to interest only payments until such time as the financial situation is restored. The announcement follows a meeting with the new President of Venezuela, Eduardo Fernandez, and outgoing Argentine President Raul Alfonsin. Alfonsin has had great success with his own version of the Cardoso Plan. There are proposals for another congress of the Lima Group.
7 January
New US tariffs on European ham and tomatoes are imposed after the European Commission states it will not extend licenses for the continued importation of meat treated with the growth hormone, diethylstilbestrol, after proven links to cancer. The decision of the US to persist makes it the only country in the world continuing to use hormone-treated meat, and will cost US producers $140 million in exports. Countries which adapt (Argentina, Australia and Brazil) report that the measure will drive up the cost of a head of cattle by $18-$19.
30 January
The market price of West Texas crude climbs to parity once again with OPEC’s floor price. Debate opens on what approach should be followed by OPEC if the market price continues to rise and on whether the premium attached to the Soviet product is now close enough to standard to justify buying large scale into the contracts rather than using them for hedge purposes.
15 February
The new US Agriculture Secretary, Anne McLaughlin, announces that she will approach the Europeans to end the trade war on beef, offering to monitor feedlots to ensure growth hormones are not used by farmers who wish to have their beef exported and labelled “hormone-free”. The European Commission releases a press release stating that it is willing to discuss in an attempt to resolve the difference.
10 April
Soviet President Mikhail Gorbachev addresses the UN General Assembly. He proposes that the Group of Seven, the body representing the major world economies, should be expanded to become the Group of Twelve in order to “prepare the world for greater cooperation and the formation of an international economic order”. He proposes the new admissions should be the CSSN, Mexico, China, India and Brazil.
8 May
At a meeting of OAS officials, Guillermo Endara, the President of Panama, suggests the renewal of the Central American Common Market with the expansion to take in his own country and the Dominican Republic, beginning in January 1991. He expresses no interest, however, in joining the Central American Parliament, arguing that Panama has already been down the path of attempts at political union.
2 June
The United States, the Soviet Commonwealth and the Peoples Republic of China sign an agreement recognising the intent to form a Global Trade Organisation. It agrees that poorer nations will be able to deploy temporary measures to address poverty that are antithetical to free trade, but that they must be graduated depending on the wealth and development of the country. Such measures will be determined through consultation with the OECD. It allows countries to restrict foreign investment where it is determined by the GTO that the investor is extracting more wealth than they are investing. It also agrees that, in circumstances approved by the owner nation, intellectual property rights can be transferred freely, with the GTO as a whole contributing to compensation for the owner. The agreement takes a stand against repudiation of national debt. Finally, it agrees that the long-term objective is to have a completely “free trade” environment. The three parties agree to conduct a summit in Montevideo in 1992 to finalise the new global trade regulations.