FROM THE OFFICE OF PUBLIC AFFAIRS

The Treasury Department today released the tenth Annual Report to Congress on International Economic and Exchange Rate Policy, which reviews developments in the major economies and exchange markets and assesses the foreign exchange systems of a number of our major trading partners. The report is provided under the Omnibus Trade and Competitiveness Act of 1988.

This report covers the period from November 1, 1996, through October 31, 1998, a time marked by the Asian financial crisis and the subsequent turmoil in international financial markets. The financial crisis resulted in economic contractions or declining growth rates across emerging markets. This, combined with continuing Japanese weakness, had a significant negative impact on U.S. exports, which resulted in a growing U.S. current account deficit. Despite the financial crisis and its impact on U.S. trade, however, the U.S. economy performed strongly over the two years covered by this report.

For most of that time, the strength of the U.S. economy and a growing aversion to risk caused an appreciation of the dollar. Between November 1996 and August 1998, the dollar appreciated by 16.9% in real trade-weighted effective terms. In September 1998, however, a growing concern about losses stemming from the global financial turmoil led to a retreat of the dollar against most major currencies. In September and October 1998, the dollar depreciated 5.4% in real trade-weighted terms.

On June 17, 1998, the U.S. monetary authorities intervened in foreign exchange markets, purchasing a total of $833 million worth of Japanese yen. This was the only intervention by U.S. monetary authorities during the period of this report.

The report presents an updated assessment of whether countries have manipulated exchange rates between their currencies and the dollar to prevent balance of payments adjustment or gain an unfair competitive advantage in international trade (as defined in the Omnibus Trade and Competitiveness Act), and concludes that none of our major trading partners is manipulating its exchange rate under the terms of the Act.

The report states that Treasury will continue to monitor closely the exchange rate policies of these countries.