TRANSATLANTIC ROW IMPERILS LOUVRE ACCORD-DEALERS
  The Louvre accord on currency stability,
  which has maintained an uneasy calm in currency markets since
  last February, appeared in serious danger today as a
  transatlantic dispute over West German interest rates came to
  the boil, foreign exchange dealers said.
      But as the dollar slid against the mark and world stock and
  bond markets plunged, officials in the major industrial
  countries played down the dispute as a bilateral problem
  between the United States and West Germany and insisted that
  the currency pact was still alive.
      U.S. Treasury Secretary James Baker sparked the market
  fears when he attacked the rise in West German short-term
  interest rates. "That's not in keeping with the spirit of what
  we agreed to as recently as earlier this month in Washington,"
  Baker said in a U.S. Television interview on Sunday. He was
  referring to the meetings of Finance Ministers from the Group
  of Seven (G7) leading industrial nations which reaffirmed the
  pact.
      Under the Louvre Accord West Germany and Japan, who both
  have large trade surpluses, pledged to boost their economic
  growth to take in more exports from the U.S., While the U.S.
  Agreed to stop talking the dollar down.
      However, Baker said on Saturday that while the Louvre
  agreement was still operative, the West German interest rate
  move would force the U.S. To re-examine the accord.
      "The foreign exchange market has been told by Baker that
  he's going to hammer Germany ... He has just declared all bets
  are off in terms of currency cooperation," Chris Johns, currency
  analyst at UBS-Phillips and Drew in London said.
      But a Bank of Japan official took a much more sanguine
  view, telling Reuters that "the exchange market is apparently
  reacting too much, and anyone who sold the dollar on the Baker
  comment will regret it later on."
      French Finance Minister Edouard Balladur, who hosted the
  Louvre meeting, was the only one of the G7 Finance Ministers to
  respond directly to Baker's remarks. He called for "a faithful
  and firm adherence by all the major industrial countries to the
  Louvre accords -- in both their letter and spirit."
      Neither the West German Finance Ministry nor the British
  Treasury commented on the row.
      But a Japanese Finance Ministry official said that despite
  U.S. Frustration over higher interest rates abroad, "this does
  not represent its readiness to scrap the basic framework of the
  Louvre Accord."
      In Frankfurt F. Wilhelm Christians, joint chief executive
  of West Germany's largest bank, Deutsche Bank, said that
  following recent meetings with Baker, he believed that the U.S.
  Was still committed to the accord.
      In a move which the market interpreted as a possible
  gesture of reconciliation, the Bundesbank added short-term
  liquidity to the West German money market at 3.80 pct on
  Monday, down from the 3.85 pct level at which it injected
  medium-term liquidity last week. The Bank of France also
  stepped into the French money market to hold down rates,
  injecting short-term liquidity at 7-3/4 pct after rates rose
  close to eight pct.
  

