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G7 frets over oil, urges 'critical' forex reform by China
By Jitendra Joshi
AFP
WASHINGTON
Petroleumworld.com 04 22 06The world's seven most powerful economies said Friday it was "critical" for China to revalue its currency and warned that record oil prices risk slowing global growth.
In a statement issued after a day of talks, the finance ministers of Britain, Canada, France, Germany, Italy, Japan and the United States said the world economy's outlook was "favorable" as it enters a fourth year of growth.
"Yet risks remain from oil market developments, global imbalances and growing protectionism. We underscored that global economic adjustment is a shared responsibility," the G7 ministers said.
Meeting as oil prices in New York surpassed 75 dollars a barrel for the first time, the officials called for greater investment in oil consuming and producing countries, and for more conservation and energy efficiency.
They issued their statement before heading into dinner talks with China and crude producers Russia, Saudi Arabia and the United Arab Emirates.
Among the potentially dangerous global imbalances they identified were the massive trade surplus being run up by China -- which Beijing's critics argue is the product of a distorted currency regime.
"Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustment to occur," their statement read.
The G7 communique was the powerful club's most forceful yet on the need for China and other Asian economies to play their role in rectifying the global imbalances.
"It's natural, since China is such a huge part of the global economy, it should be a focal point," US Treasury Secretary John Snow told a news conference.
French Finance Minister Thierry Breton identified Japan and Malaysia as other countries that need to change their currency behavior.
"I'm convinced that the Japanese authorities will let the markets freely set the value of their currency," he said, after repeated accusations by some Western companies that Tokyo is putting a lid on the yen.
The G7 ministers said: "In emerging Asia, particularly China, greater flexibility in exchange rates is critical to allow necessary appreciations, as is strengthening domestic demand, lessening reliance on export-led growth strategies, and actions to strengthen financial sectors."
After constant US prodding for the International Monetary Fund to focus on its core mandate of currency surveillance, the G7 ministers also encouraged IMF chief Rodrigo Rato in that direction.
"We supported the strengthening of IMF surveillance, including through increased emphasis on the consistency of exchange rate policies with domestic policies and a market-based international monetary system and on the spillover effects of domestic policies on other countries," they said.
The United States believes China has been too cautious in adjusting the value of its yuan currency, fostering deep imbalances in global trade, despite a small revaluation last July.
Chinese President Hu Jintao pledged Thursday after White House talks with President George W. Bush to "advance the reform" of exchange rates and take steps to boost imports, but was vague on how this will be done.
The meeting of the G7 club took place before the World Bank and the IMF hold their spring meetings over this weekend.
Ahead of the meetings, the IMF has stepped up warnings that the world economy is dangerously out of kilter as the US current account deficit surges to record levels on the back of rising oil prices and China's trade boom.
The higher the US deficit goes, the IMF fears, the greater the risk of foreign investors deserting the US economy, and so the greater the risk of a global economic crash.
The G7 nations recognized the need for policy action closer to home.
They said the United States needs to consolidate its deficit-ridden finances and raise its abysmal savings rate; Europe needs to undertake deeper structural reforms; and Japan should entrench its own reforms after a years-long slump.
The G7 ministers also pledged support for an "ambitious outcome" for the World Trade Organization's "Doha round" of talks, and vowed to "resist protectionism."
However, the Doha round appears to be on life support after several top officials warned Friday that WTO players have failed to narrow differences enough to reach a broad deal by an end-April target.
AFP 04 22 06 0123GMTCopyright © 1994-2006 Agence France-Presse. All Rights Reserved.
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