G7 pledge to calm world financial jitters

Finance officials from the world’s seven richest countries sought to calm jittery financial markets today by pledging “vigorous action” to deal with problems, including soaring energy prices, that could undermine global growth.

A joint statement from the finance ministers meeting in Washington, USA, said worldwide economic expansion “remained robust” and that the outlook was for “solid growth” this year.

But the officials, whose meeting was chaired by Chancellor Gordon Brown, said the recent jump in oil prices was a ”headwind” to growth. They stressed the need for the United States to address its surging budget deficit and for Europe and Japan to deal with workplace barriers that are restricting growth.

“Vigorous action is needed to address global imbalances and foster growth,” the G-7 officials said in their joint statement.

The statement followed talks hosted by US Treasury Secretary John Snow and Federal Reserve Chairman Alan Greenspan. Participants came from the US, Japan, Germany, France, Britain, Italy and Canada.

Wall Street on Friday had its worst single-session loss in nearly two years, a sell-off blamed on investors’ concerns that rising oil prices threaten to derail the economic recovery in the US and other industrial nations.

In an attempt to bolster confidence, the G-7 officials expressed optimism the economy would grow at a solid rate this year. They said they based that outlook on favourable factors, such as subdued inflation and central banks’ interest-rate policies.

The group warned against complacency and said the major economic powers must act on various fronts: the US by cutting its record budget deficits and Europe and Japan by undertaking workplace reforms such as making it easier to hire and fire workers.

The G-7 discussions were in advance of weekend meetings of the 184-nation International Monetary Fund and World Bank.

IMF members were to hear from United Nations Secretary-General Kofi Annan on the need for rich countries to give more aid to poor nations. That approach fits into Annan’s efforts to overhaul UN operations.

The finance meetings, held a few blocks from the White House, took place under heavy security, but police did not expect demonstrations to match those from previous years.

Several dozen protesters gathered at midday in the small park across from the World Bank headquarters. They held colourful puppets and signs that demanded the end of Third World debt and deplored corporate greed.

Recognising the problems that confront the economy, the G-7 officials said: “Higher oil prices are a headwind and the expansion is less balanced than before.”

They cited an initiative from their October meeting that was intended to supply global traders with better oil market information and help prevent price swings based on incorrect data.

The G-7 statement endorsed the need for major economies to adopt “flexibility in exchange rates”.

That phrase is seen as an effort to prod China to stop directly linking its currency to the US dollar and allow market forces to set the yuan’s value.

American manufacturers claim China’s current policy had undervalued the yuan by as much as 40%, giving that country a huge competitive trade advantage.

Snow and other Bush administration officials said this week that China could move immediately to overhaul its currency system. Beijing insists it needs more time.

Chinese finance officials accepted invitations to attend the two previous G-7 meetings. But the Chinese made clear they would appear at the current session, an apparent signal they did not want to be lobbied more intensely on the currency issue.

The G-7 statement endorsed the goal of proving as much as 100% debt relief for the world’s poorest countries. Differences are not settled yet, however, between competing plans advanced by the US and Britain.