Despite last week's sudden plunge in stock prices, top economic policymakers from the world's richest countries expressed confidence yesterday that the global economy remains on track for "solid growth" this year, while acknowledging that high oil prices are generating economic "headwinds."
The upbeat joint statement by finance ministers and central bank governors from the Group of Seven major industrialized nations broke little new ground, but their meeting in Washington provided an opportune moment to issue soothing words about the outlook. Coincidentally, the meeting came after several days of turmoil in financial markets that culminated Friday in Wall Street's worst single-session loss in nearly two years.
Participants in yesterday's G-7 meeting in Washington chose to issue an optimistic report on the global economy.
(Jonathan Ernst -- Reuters)
"I don't comment on stock market moves. What I do comment on is underlying fundamentals, and the underlying fundamentals remain strong," U.S. Treasury Secretary John W. Snow said at a news conference following the meeting with his counterparts from Japan, Britain, Germany, France, Italy and Canada. The gathering coincided with the spring meetings of the International Monetary Fund and World Bank.
Snow sought to quell worries by highlighting positive forces undergirding the U.S. economic expansion. He conceded that high energy costs "hurt" and that the surge in gasoline prices means that some consumers "aren't going to the malls as much." But, he added, "Does productivity remain high? It does. . . . Is inflation rearing its head? The answer is no. . . . Is capital spending strong? Yes. Are jobs being created? Of course jobs are being created."
In its communique, the G-7 pledged "vigorous action" to deal with "global imbalances" -- a reference to the massive U.S. trade deficit and corresponding trade surpluses of other nations, especially the export-driven economies of Asia. But the statement mostly reiterated past calls for countries to take measures that should help shrink the trade gap, including a reduction of the U.S. budget deficit and "structural reforms" in Europe and Japan to help speed growth.
The G-7 conspicuously refrained from commenting directly on one politically charged issue related to the trade deficit -- China's decade-old practice of keeping its currency, the yuan, pegged to the U.S. dollar at a rate of about 8.3 yuan per dollar. That policy has been widely attacked in recent months, especially by members of Congress and U.S. manufacturers, as an artificially low rate that gives Chinese goods an unfair edge in world markets.
Bush administration officials had raised expectations that the G-7 would turn up the heat on China, because they had ratcheted up pressure themselves in recent days by urging that the yuan be allowed to rise now. Previously, they had refrained from putting the Chinese on the spot about timing.
But the G-7 communique included only the language that has been contained in every such statement for the past year. "More flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility," the statement said.
Senior Treasury officials, briefing reporters on condition of anonymity because of the sensitivity of the issue, maintained that no importance should be attached to the communique's lack of a specific reference to China or the timing of a change in currency policy. But they dodged questions about whether there was unanimity in the G-7 on the matter. "Everyone shares the view that they should move to flexibility as soon as possible," said one Treasury official, adding that this meant, for example, "clearly not that they should move to flexibility in 2024."
China's finance minister and central bank governor did not meet with the G-7 yesterday as they have at the two previous G-7 meetings where the currency issue was a central focus. The deputy central bank governor, Li Ruogu, met Friday with John B. Taylor, Treasury undersecretary for international affairs, department officials said.
Snow contended that the meeting had achieved significant progress on the issue of forgiving the debts of the world's poorest nations, raising the prospect that an accord will be reached among the G-7 at its leaders' July summit. "Clearly there's been a lot of movement in the direction of the U.S. proposal," he said, referring to a plan that would cancel all of the debt owed by more than two dozen poor countries to the IMF, World Bank and other multilateral lenders.
British officials fear that the U.S. proposal would hurt the World Bank financially by failing to provide it with new funding to compensate for the debt write-offs. Gordon Brown, the British chancellor of the exchequer, asserted that London's approach is the one winning support. "All countries have now signed up to the idea that more money must be found," Brown said.
Groups championing debt aid derided claims that much was accomplished.
"The statement today . . . represents no significant progress," the Jubilee USA Network said in a news release.