Amadeusz Juskowiak

Regan departure makes 3rd volcker term likely

Last weeks White House shakeup has increased the odds that Federal Reserve Board chairman Paul Volcker a symbol of strength in a government reeling from the armstoIran scandal will serve a third term sources close to the Fed say

But they said that no decision on the appointment which must be filled this August has been taken by the White House and Volcker too has not made up his mind

Former White House Chief of Staff Donald Regan who resigned last week when exsenator Howard Baker was named as his replacement was implacably opposed to Volcker and tried often to undermine him

It is an open secret in Washington that Regan tried to ensure that Volcker first appointed in 1979 by President Carter will not be offered a third term by President Reagan

Only Volckers key allies in the Reagan administration VicePresident George Bush and Treasury Secretary James Baker kept Regans recent maneuvering at bay the sources said

Sources close to the administration say Regan leaked a story quickly shot down by others in the administration that Beryl Sprinkel chairman of the council of economic advisers had been chosen to replace Volcker

But as the administrations credibility was increasingly under fire it became clear that Regans power to bring about such changes was on the wane

The sources said New White House Chief of Staff Howard Baker has a very good relationship with his namesake at the Treasury Department and is likely to respect his views on the Fed chairmanship

As a moderate Republican Baker is also unlikely to share the rightwings opposition to Volcker

This new White House is going to need all the strength it can get said one source when asked about the possibility of Volckers reappointment

Paul Volcker is deeply respected in financial markets both in the United States and around the world At a time when the stability of the dollar and the viability of major debtor nations are in question Volckers departure would definitely undermine US leadership foreign exchange analysts say

US officials say Volcker works very closely with Treasury Secretary Baker on issues like international debt and global economic cooperation

The two men seem only to differ on how far to deregulate the banking industry but recent statements by Volcker in which he adopted a more liberal attitude on deregulation signalled the politicallyindependent central bank is coming around at least partially to the Treasury position

And a recent statement by a Reagan administration official that the two men saw exactly eyetoeye on the dollar was seen as an indication of Bakers support for the Fed chairman

Baker is understood to have played a key role in Volckers reappointment to the Fed in mid1983

The sources said Baker respects Volcker and when appointed Treasury Secretary in February 1985 he decided to ensure a good working relationship in part because he believed the two key government economic institutions have to work closely

Regan Treasury Secretary during President Reagans first term was formerly head of Wall Streets largest brokerage firm Merrill Lynch and came to Washington determined to be Americas preeminent economic spokesman

He developed a deep antipathy for Volcker whose political skills undermined that ambition and who financial markets took much more seriously

But the sources said Volcker would have to be invited to stay Is the president going to ask him he wouldnt stay otherwise said one Hed have to be asked said Stephen Axilrod formerly staff director of monetary policy at the Fed and now vicechairman of Nikko Securities Co International

Otherwise the list of potential candidates is not aweinspiring And if Volcker left this Augsut he would leave behind one of the most inexperienced Fed Boards in years

Many analysts believe this lack of collective experience the four sitting members were all appointed within the last three years is dangerous coming at a time when the global economy is threatened by instability

An experienced successor therefore would seem a necessity One widely mentioned possibility is Secretary of State George Shultz whose experience as Treasury Secretary under Preesident Nixon and background as a trained economist would make him ideal

But Shultz too may have been damaged by the armstoIran scandal while vicechairman Manuel Johnson is regarded at 37 years old as too young for the job

Other potential candidates include economist Alan Greenspan frequently an informal presidential economic adviser New York Fed President E Gerald Corrigan Federal Deposit Insurance Corp chairman William Seidman and Sprinkel

Long a Regan protege Sprinkels chances may be damaged by his patrons departure from the White House