Global economy goes well, say G-7 leaders
Sunday, April 25, 2004
WASHINGTON -- Despite worries about high oil prices and Middle East unrest, the world's major industrial countries expressed optimism about the global economy on Saturday, contending the world was poised for strong growth this year and next.
However, in an effort to deal with the rising violence, the Group of Seven major industrial countries pledged economic support to rebuild the war-torn economies of Iraq and Afghanistan and the Palestinian areas of the West Bank and Gaza.
The G-7 nations -- the United States, Japan, Germany, France, Britain, Italy and Canada -- struck an upbeat tone in a joint communique issued as part of a weekend of financial discussions centered around the spring meetings of the 184-nation International Monetary Fund and the World Bank.
U.S. Treasury Secretary John Snow, who led the discussions along with Federal Reserve chairman Alan Greenspan, said there was a feeling of shared optimism in the group, reflecting a belief that strong growth in the United States, powered by President Bush's tax cuts, was helping to boost the global economy.
"There was a clear sense that improvement is being made and the balance of risks was more favorable than the environment we faced three months ago or six months ago," he told reporters following the G-7 discussions.
British Chancellor of the Exchequer Gordon Brown agreed, saying, "It is a recovery that is strengthening and is becoming more broad based."
In their communique, the G-7 ministers said that prospects for the global economy were favorable. "Although risks remain, such as energy prices, overall the balance of risks to the outlook has improved," it said.
Jean-Claude Trichet, the head of the European Central Bank, said he had pushed to include a reference to the threat of higher energy prices as a way for the G-7 to take a "high level of responsibility" for trying to restrain those increases.
The G-7 countries said they stood ready to provide financial assistance in the Middle East, hoping to improve the prospect for jobs in the region, including Iraq, and help to stabilize what is now a deteriorating security situation.
Forgiving Iraq's debtsThey called for more countries to come forward with offers of debt forgiveness for Iraq and Afghanistan and said they were prepared to provide assistance in rebuilding efforts not just in those two countries but also in the Palestinian areas of the West Bank and Gaza.
The G-7 discussions were followed by a meeting Saturday of the steering committee of the 184-nation International Monetary Fund and a special session between the G-7 and finance officials from the Mideast aimed at exploring ways to bolster economic growth in the troubled region.
At a closing news conference late Saturday of the IMF's policy-setting panel, the group highlighted a number of economic risks countries need to address such as America's large budget deficit, the need for structural reforms in Europe and further banking and corporate reforms in Japan.
"The priority now is to implement ... policy measures that will help achieve a robust, balanced and sustainable recovery," the IMF panel said.
A peaceful crowd of about 1,000 anti-globalization demonstrators marched through 15 blocks of downtown Washington on Saturday to protest the policies of the IMF and World Bank, which they say favor wealthy nations at the expense of the world's poorest countries.
This year's meetings were being held against the backdrop of a global economy that the IMF is forecasting will grow at a 4.6 percent clip this year and 4.4 percent next year, the fastest back-to-back growth years in a decade.
However, the IMF also cautioned that this bright prospect could be derailed if oil prices spike even higher or if the unstable security situation in the Middle East begins to weaken consumer and business confidence and rattle global financial markets.
Snow, who has been pushing Europe to do more to implement structural reforms in taxes and labor markets, told reporters that "growth still lags in too many areas and thus needs to be more broadbased.."
While there had been criticism of the threat that America's huge budget and trade deficits pose to the global economy by pushing interest rates higher, Snow said that these imbalances did not come up in the G-7 discussions, which began Friday night and concluded Saturday.
But David Dodge, head of Canada's central bank, told reporters that the G-7 officials recognized that global interest rates would be headed higher and that this would put pressure on the interest rates in developing countries and the "spread" or added interest these nations must pay above U.S. Treasury rates.
"There was a general recognition around the table that these spreads over time were going to widen," he said, adding that there is concern that foreign investors might be caught if emerging market bond prices plunge.
On the matter of currency rates, the G-7 finance officials repeated the language they adopted at their last meeting in Boca Raton, Fla., -- that "more flexibility" on the part of some major countries was needed.
That language was a nod of support to the administration's campaign to pressure China to stop tying its currency to the value of the U.S. dollar, a practice American manufacturers contend has given Chinese companies a huge competitive advantage and contributed to U.S. job losses and America's record $124 billion trade deficit with China.