Former US Fed head set the precedent

IF IT were not for the groundwork laid down by Paul Volcker, Alan Greenspan might not be as highly regarded as he is today.

Volcker, the former chairman of the Federal Reserve Board who will give a speech at the Oriental Hotel today, set the standard for his position in the late 1970s when he fought inflation head-on.

Back then, US inflation was running at 13 per cent a year, putting President Jimmy Carter in a very difficult political situation. Without price stability, healthy US economic growth would have been impossible.

As Michel Camdessus, the managing director of the International Monetary Fund, used to remark: ''Inflation is like a seven-headed dragon. Even if you have killed one head, you still have not done anything.''

Shortly after his nomination as the Fed chairman in 1979 by Carter, Volcker unveiled a package of measures, including the establishment of higher interest rates aimed at bringing inflation under control, calming financial markets and indirectly bolstering the dollar.

His determination to combat inflation eventually paid off. US President Ronald Reagan nominated him to serve a second term as the Fed chairman. Volcker established the groundwork for developing and maintaining a strong economy by bringing inflation under control, and Greenspan inherited his legacy.

Next month the US, buoyed by price stability, will experience the longest period of economic expansion in its history.

Greenspan will be re-nominated for a fourth term, keeping him in the position as one of the world's most important figures.

''Without Volcker, there might not be Greenspan,'' said MR Chatu Mongol Sonakul, the governor of the Bank of Thailand, expressing a high regard for the Federal Reserve's management policies.

''They are extremely good at managing inflation by setting the appropriate interest-rate level. They have the intermediate target of inflation in mind, which might not be publicly announced. But they know what they are doing. They're operating the best system in the world.''

Volcker will be giving a speech on Globalisation and the International Finance Sytem today at the Oriental Hotel. It is part of a special series of talks organised by the Bank of Thailand to mark HM the King's Sixth Cycle Celebration. Volcker will also be granted an audience with the King at his resort palace in Hua Hin.

The timing of Volcker's visit is appropriate, given the central bank's move to introduce inflation targeting as a cornerstone of its monetary policy. ''We ought to be satisfied if ordinary people and businessmen don't feel they must assume prices are going to change when they're making their investment and spending decisions,'' Volcker once said.

BY THANONG KHANTHONG