- The Washington Times - Monday, November 15, 2004

DUBLIN - The United States would like the dollar to strengthen but says international currency markets should set its value, U.S. Treasury Secretary John W. Snow said yesterday.

Mr. Snow, who spoke before meeting with Prime Minister Bertie Ahern in the Irish capital, offered no hint that the United States wanted European central banks to intervene in support of the currency.

“Our policy on the dollar is well known. We support a strong dollar. A strong dollar is in America’s interests,” he said.

But when asked whether the United States or other central banks should act to prop up its value, Mr. Snow suggested otherwise.

“Our basic policy, of course, is to let open, competitive markets set the values. Markets are driven by fundamentals and towards fundamentals,” he said.

The euro closed at $1.295 yesterday in New York trading, from $1.297 late Friday. The euro on reached $1.301 Wednesday, the highest since its 1999 debut.

The dollar slide means that a vacation for Americans in Europe is now more expensive, and European products coming into this country will cost more.

American company Tupperware Corp. is rooting for the dollar to stay weak, while Irish crystal maker Waterford Wedgwood PLC wants the opposite.

Orlando, Fla.-based Tupperware, best known for its snap-top plastic food containers, gets almost half its sales from Europe.

When that revenue is converted to dollars, it translates into higher reported profits, as rich euros buy an ever-increasing number of dollars. In the most recent quarter, the currency effect accounted for almost 30 percent of the company’s $18.6 million net income.

Waterford Wedgwood, which makes Waterford crystal and Wedgwood china, depends on the United States for about half its sales. But with each dollar it brings home to Dublin, now worth only about 77 euro cents, the company has been forced to slash costs at its factories to stay competitive.

The dollar hit a new low against the euro Wednesday and has lost 10 percent of its value against the currencies of the United States’ major trading partners since mid-May, figures from the Federal Reserve show. The euro, introduced in 1999 as the currency of 10 other European nations, is on a tear, up 57 percent since October 2000.

Some analysts think the dollar’s decline is being engineered — or at least blessed — by the Bush administration, which wants to help U.S. companies boost overseas sales.

During its four years in power, the administration has not intervened in currency markets to support the dollar or done anything else to stop the dollar’s slide.

The tactic may be working: The Commerce Department reported last week that exports of goods and services grew 0.8 percent to a record $97.5 billion in September. Even so, the trade deficit topped the $50 billion mark for the fourth consecutive month.

Most economists say the dollar has yet to reach its lowest point. Some say the dollar needs to decline by 10 percent more to deal with the climbing U.S. trade deficit.

The dollar’s decline carries the risk of sparking inflation as foreign goods become increasingly expensive.

And former Treasury Secretary Robert E. Rubin suggested last week that the administration could be playing with fire, and noted that unless politicians in Washington get serious about reducing the federal deficit, an acceleration of the dollar’s decline could cause “serious disruptions in our financial markets.”

At the current rate, the United States has to attract $5 billion of working capital every day to finance the current account deficit and American investments abroad, said C. Fred Bergsten, director of the Institute for International Economics in Washington.

The current account deficit is made up mostly of the country’s trade debt, but includes foreign aid and money immigrants send home.

That’s why Mr. Bergsten also is predicting further declines.

“Everyone in the market knows the dollar has to come down a lot,” he said. “People are starting to run for the exits.”

For now, the benefits of a cheaper dollar are mostly a positive for such mainstay American companies as International Business Machine Corp., Amazon.com Inc., Levi Strauss & Co. and Estee Lauder Cos. Inc., whose overseas sales help boost their earnings in dollar terms.

IBM’s sales grew 8.9 percent in its most recent quarter. But without the boost from currency exchange, sales would have grown only 4.9 percent.

Divisions of IBM that do most of their business abroad see a more dramatic impact. IBM’s software business had a 4.8 percent sales increase for the quarter, before adjusting for currency.

American “goods become cheaper abroad, so you can sell more goods abroad,” said Jay Bryson, a global economist at Wachovia Corp.

In contrast, European companies that sell goods and services in the United States hate the weak dollar, because every time they exchange their dollars for euros, they lose money.

Companies such as French media telecommunications giant Vivendi SA, Finland-based sports equipment maker Amer Group PLC, German sporting goods maker Adidas-Salomon AG and Finland’s Nokia OYJ, the world’s largest mobile-phone maker, are among the companies that have recently reported earnings or sales shrunk by the strong euro.

The dollar’s slide has been most pronounced against European currencies,.

But it has fallen only slightly against currencies in Asia.

That is where the United States has been running its biggest trade deficits in past years.

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