FED CHAIRMAN VOLCKER SAYS BANK PROPOSALS A WORRY

  The chairman of the Federal Reserve
  Board, Paul Volcker, has written to the chairman of the House
  Banking Committee to raise concerns about legislative proposals
  scheduled for consideration Wednesday.
      Volcker told committee chairman Fernand St. Germain a
  proposal to deny primary dealer status to firms from countries
  that do not grant U.S. firms equal access to their government
  debt markets might invite retaliation against U.S. firms
  abroad.
      He added, "even Japan, against whom this proposal seems to
  be particularly directed," has started opening its markets.
      In his letter, made available at the Treasury, Volcker also
  said a proposal to ease debt problems of developing countries
  by setting up a public facility to buy their debts owed to
  commercial banks, was a problem.
      "I believe that the prospect of debt relief would undermine
  the difficult internal efforts of the borrowing countries to
  achieve the structural reform that is needed regardless of the
  policies that are followed on servicing external debt," Volcker
  said.
      It might also cause private lenders to become reluctant to
  extend more credit to the borrowing countries, he said.
      Volcker said he endorsed comments by Treasury Secretary
  James Baker "about the inappropriateness of using public
  resources for purchasing private commercial bank debt, which we
  both see as an inherent aspect of the proposed international
  debt facility."
      He also said a proposal for establishing formal procedures
  for international negotiations on currency exchange rates "is
  unrealistic and could well have damaging effects."
      "For example, the bill's directive to intitiate negotiations
  in order to achieve a competitive exchange rate for the dollar
  -- a matter upon which there can be considerable difference
  among analysts -- runs the risk of building up potentially
  destabilizing market expectations," Volcker said.
      He recommended "we should not lock ourselves into formalized
  procedures for international negotiations" on exchange rates but
  instead use other, more flexible means like the recent mmeting
  in Paris between U.S. treasury and central bank representatives
  and those of major trade allies.
  

