Finance leaders pledge coordination to strangle terrorist group

WASHINGTON -- World finance leaders, seeking to project confidence in the face of a slumping global economy and a worsening economic crisis in Latin America, pledged greater coordination Friday to take on problems including a prime U.S. goal: more action to choke off terrorist finances.

U.S. Treasury Secretary Paul O'Neill and Federal Reserve chairman Alan Greenspan served as hosts for a discussion among their counterparts from the world's seven richest industrial countries -- the United States, Japan, Germany, France, Britain, Italy and Canada.

The talks were being held at Blair House, the government's official guest house, under heavy security as hundreds of protesters and police clashed at various points throughout the city. Police arrested more than 600 people.

While demonstrators had vowed to shut down the city by tying up traffic, they managed only minimal disruptions during the morning rush period as they snaked through Washington on foot and bicycles, carrying signs proclaiming "End Corporate Greed."

The protest groups promised even larger demonstrations Saturday, the formal opening of the annual meetings of the 184-nation International Monetary Fund and the World Bank.

The Group of Seven finance ministers and central bankers sought to project unity in an effort to calm U.S. and global financial markets, which have been plunging in recent weeks over worries about the durability of the rebound from last year's recession, a wave of corporate accounting scandals in the United States and what a U.S. war in Iraq might do to derail the global recovery.

Also high on the agenda were worries about a deepening economic crisis in Latin America, particularly South America's two largest economies. Argentina has been unable to agree with the IMF on conditions for badly needed new loans to help that country recover from a deep recession. In Brazil, the currency has been hitting new lows on growing investor worries that the continent's largest economy is about to default on its foreign debt.

Before the G-7 discussions began, O'Neill held three hours of talks Friday morning with finance ministers from the Western Hemisphere's other 33 democratic governments. He was assured by the other countries that Latin America will continue pushing to create free-market economies.

There has been unease within the Bush administration that economic turmoil in Argentina and Brazil, two countries praised for their pursuit of U.S.-backed free-market goals, would cause the region to turn back toward more governmental control of the economy.

In a chairman's statement read by O'Neill, however, the group promised to continue work toward creating a hemisphere-wide free trade zone by 2005 and to try to follow sound economic policies that would encourage the return of foreign investors.

On terrorist financing, the group said it had adopted a new action plan "that expresses our undiminished commitment to uphold international standards and take concrete steps to combat the financing of terrorism."

The joint statements did not hide all the disagreements.

Argentine Finance Minister Roberto Lavagna complained on Thursday that the IMF is demanding too many conditions before it releases loans. It was the IMF's decision to cut off loans last December that forced Argentina into history's largest government default, halting payments on most of its $141 billion in foreign debt.

O'Neill expressed puzzlement over surprise actions taken recently by Japan's government to try to reverse a plunge in the stock market and revive an economy struggling to emerge from its third and worst recession of the past decade.

After O'Neill and Japanese Finance Minister Masajuro Shiokawa held one-on-one talks Friday, Shiokawa told reporters he had assured O'Neill that Japan would achieve growth of 1 percent in the budget year beginning next April. He said O'Neill expressed confidence that the U.S. economy would be growing at rate of 3 percent or better by the end of this year.

Finance officials did report progress on what was likely to be one of the biggest achievements of the three days of talks, support for changes to make it easier for countries such as Argentina to deal with debt burdens that have become unsustainable.

Deputy Treasury Secretary John Taylor told reporters there had been good discussions on Thursday among G-7 finance officials and representatives of a number of borrowing countries, private banks and investment houses over a U.S. proposal to insert new clauses in bond contracts that would allow a majority of bond holders to agree to more lenient repayment terms for countries in trouble, rather than requiring all bond holders to sign off on a debt restructuring deal.

Also expected to be endorsed for further study was a more sweeping IMF proposal that would essentially grant to countries the same privileges U.S. corporations have to declare bankruptcy and institute talks with creditors for more lenient repayment terms.