U.S. tries to ease allies about falling dollar, deficits

BOCA RATON, Fla. -- The Bush administration tried Saturday to reassure America's major economic allies worried about the sinking dollar and the exploding U.S. budget and trade deficits.

In the face of stinging criticism from other rich countries, the administration defended its hands-off approach to the dollar's sharp slide, which has pushed the greenback in recent weeks to record lows against the euro, the common currency of 12 European nations, and to three-year lows against the Japanese yen.

Treasury Secretary John Snow and Federal Reserve chairman Alan Greenspan served as hosts for the two days of discussions at the winter meeting of finance officials from the Group of Seven wealthy countries -- the United States, Japan, Germany, France, Britain, Italy and Canada -- held amid swaying palm trees and warm breezes at a resort on Florida's Gold Coast.

A small band of demonstrators stood outside the resort Saturday chanting "Stop Corporate Greed" and holding up signs urging "Deep Six the G-7."

The administration is hoping that a weaker dollar, by making American products cheaper on overseas markets, will boost American manufacturing exports and lift the fortunes of a sector of the economy that has seen 2.8 million jobs disappear over the past 3 1/2 years. Democratic presidential candidates have cited these lost jobs as a prime example of the failure of President Bush's economic policies.

European complaints

Europeans complained, however, that their companies were being forced to bear the brunt of the dollar's plummet because Japan, China and other Asian countries were intervening massively in currency markets to stem the dollar's fall against their currencies.

The Europeans argued for language in the final communique that would at least warn against excessive volatility in currency markets; the United States wanted to highlight the benefits of flexibility in currency exchange values to allow for adjustments based on market forces in such key areas as America's record trade deficits.

Snow used his one-on-one talks Friday with individual countries and Saturday's group discussions to deflect criticism of the administration's sweeping tax cuts, which the other countries blame in part for record U.S. budget deficits.

Other nations insisted that the United States, now in recovery, should tighten both monetary and fiscal policy by raising interest rates and trimming the budget deficit, projected by the administration to hit $521 billion this year, the largest ever.

Snow countered that the administration has a credible plan to cut the deficit in half in the next five years, and the stronger U.S. growth stemming from low interest rates and the tax cuts was having a beneficial effect in bolstering global growth prospects.

The G-7 ministers also discussed their countries' joint efforts to choke off sources of terrorist financing and to bolster reconstruction in Iraq and Afghanistan, both devastated in the aftermath of U.S.-led invasions.

Afghan Finance Minister Ashraf Ghani told reporters Saturday that his country would be seeking pledges of another $28.5 billion in aid and reconstruction financing over the next seven years at a donors' conference of wealthy nations to be held in Berlin at the end of March.

The top finance officials of both Afghanistan and Iraq made special presentations to the G-7 on Saturday, detailing progress being made in jump-starting their economies despite continued serious security threats in both countries.