G-7 draft statement says nations will work to steady global markets

Mainichi Daily News
Feb 9, 2008

TOKYO (AP) -- The world's leading economies pledged to take appropriate action to secure stability in global markets but stopped short of prescribing specific measures, according to a draft statement Saturday from the Group of Seven wealthy nations.

The draft, obtained by Dow Jones Newswires, said the fundamentals of the world economy are solid, but uncertainty has increased due to a deterioration of the U.S. economy, financial market turmoil, high oil and commodity prices, and heightened inflation expectations.

The document was agreed to on Friday evening, and the final version was due after a G-7 meeting of finance ministers and central bank governors, which began Saturday afternoon. The draft statement left blank the paragraph on exchange rates.

"Going forward, we will continue to watch developments closely and take appropriate actions, individually and collectively, in order to secure stability and growth in our economies," the draft said.

The G-7 had faced calls for increased coordinated action to deal with the financial market turmoil, although the various countries differed on what measures were appropriate. The U.S. has urged other countries to pursue policies to boost domestic demand, while the Europeans have said their economies are resilient and focused more on regulatory coordination.

French Finance Minister Christine Lagarde said earlier in the day the statement would call for beefing up stabilization efforts in the wake of the U.S. credit crisis, which surfaced last year, roiling global markets and fueling fears of a worldwide slowdown.

"There is a great convergence of views on proposals aimed at improving transparency, governance and supervision," she told reporters ahead of the G-7 meeting, while declining to elaborate.

The draft statement took note of the downturn in the global economy, though it did not forecast a recession.

"The world confronts a more challenging and uncertain environment than when we met in last October, though its fundamentals as a whole remain solid," the draft said. "In all our economies, to varying degrees, growth is expected to slow somewhat in the short-term, reflecting wider global economic and financial developments."

Lagarde and senior ministers from Japan and Britain, however, had already thrown cold water on hopes that this weekend's meeting will produce any sweeping policy agreements -- such as a unified move to cut interest rates -- to remedy market instability. The draft statement made a reference to steps that are "appropriate to our domestic circumstances."

After talking with U.S. Treasury Secretary Henry Paulson ahead of the Group of Seven meeting, Lagarde said Paulson made clear the United States had not called for others' stimulus packages, despite comments out of Washington favoring boosting demand.

"We have been surprised by the creativity of the media on this topic. Paulson didn't suggest that other countries should resort to fiscal stimulus," she said.

The remarks were similar to sentiments expressed earlier by other participants, who played down expectations for anything more than a message of unity among the seven industrialized nations comprising the G-7 -- the U.S., Japan, Germany, Britain, France, Italy and Canada.

After a luncheon meeting, the officials met more formally in the afternoon at a Tokyo conference hall. Finance chiefs from China, Russia, South Korea and Indonesia were expected to join the G-7 officials at a dinner later in the day to expand the discussions.

Japan was expected to bring up the idea of a multilateral fund to help poor nations curb global warming. Tokyo has said it will push such climate change efforts at a July meeting in Hokkaido of the Group of Eight, or the G-7 plus Russia.

World financial markets have been battered since the start of the year amid worries about a possible U.S. recession and uncertainty about the full extent of the subprime mortgage crisis that has led to billions of dollars (euros) in losses at major banks.

U.S. efforts to tackle the credit crunch is expected to be a key discussion topic.

"Paulson said he was concerned about the state of the U.S. economy and is worried about the U.S. property market. But he didn't use the word 'recession,"' Lagarde said.

At the gathering, the senior officials will hear a preliminary report from a panel of experts led by Mario Draghi, the head of Italy's central bank, who were asked by the G-7 last fall to study the market turbulence and make recommendations on what should be done.

Paulson will talk about the U.S. economic stimulus plan, said David McCormick, U.S. Treasury Undersecretary for International Affairs. The U.S. Congress passed on Thursday a US$168 billion package of tax rebates for American consumers, business tax write-offs and other measures to shore up the sagging economy.

Fed Chairman Ben Bernanke is also attending the gathering.

The Fed slashed a key U.S. interest rate by 1.25 points to 3 percent late last month, and investors speculate that more cuts may be coming. On Thursday, the Bank of England cut its rate a quarter point to 5.25 percent.

The European Central Bank, which sets policy for the euro-zone, appears to be leaving the door open for a rate cut, but it is unlikely to take as drastic a move as the U.S. because of inflation concerns. The Bank of Japan is even less capable of action with its key rate at 0.5 percent.