G-7 Vows to Avert World Recession, Stop Dollar’s Fall

The world’s wealthiest industrial democracies said Friday that they are confident they can avoid a global economic recession this year despite a sharp slowdown in the United States and other countries.

In a communique issued on the second day of their three-day summit, and in subsequent individual statements, leaders of the Group of Seven also said they want to stop the decline of the dollar on world currency markets--offering an unusually powerful and united front to defend the weakened U.S. currency.

“We remain encouraged by the continued strong growth in much of the world’s economy,” the leaders of Britain, Canada, France, Germany, Italy, Japan and the United States said.

“While there has been some slowing, in most of our countries the conditions for continued growth appear to be in place, and inflation is well under control.”

As expected, the leaders also endorsed a plan for an emergency fund to prevent crises such as Mexico’s financial debacle from turning into global economic problems, and they pledged to develop procedures to help nations in economic crisis work out the orderly payment of debts owed to private lenders.

The seven were meeting for the 21st time in a series of summits that began in 1975 in the splendor of a French chateau. On Friday, in an old Atlantic harbor town in Nova Scotia with a museum that displays a deck chair from the Titanic, they spent much of their time agonizing over the insoluble political problem of Bosnia-Herzegovina.

Today they are being joined in their formal political discussions by Russian President Boris N. Yeltsin, who took part in the leaders’ dinner Friday night after arriving from Moscow.

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On Friday, the seven praised the decision by Ukraine President Leonid D. Kuchma to close the Chernobyl nuclear plant, site of history’s worst nuclear power disaster, by the year 2000, and supported the issuing of $2 billion in loans by international financial institutions to Ukraine.

More than at any recent such summit, economic problems occurring beyond the borders of the conference participants dominated the discussions, set around an eight-sided cherrywood table inside a green-glass office building.

Spurred by the economic crisis that shook the Mexican economy to its foundations in December and January, the seven set in motion a program to encourage other nations to offer monthly reports on important economic developments, including their government spending and income as well as data on the health of their central banks.

Such routine public notices would help the international economic system avoid the shocks that occurred when Mexico’s precarious position became public. Officials said they hope that the measures would also put pressure on developing economies to adhere to sound economic practices.

The group also pledged to add $27 billion to an International Monetary Fund reserve for nations that find themselves in fiscal trouble, doubling a fund used to stabilize tumbling currencies.

However, recognizing the row that President Clinton’s plan to help Mexico prompted in Congress last winter, they stressed that such international assistance would be available only on the condition that strict, responsible fiscal practices are being followed, and that no country could count on an automatic handout.

But the question of how to drive their own economies to avoid the turmoil of recession and inflation, the issues that lie at the foundation of the annual summits, remained an undercurrent throughout the more than 12 1/2 hours the leaders had spent together since Thursday evening.

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Emphasizing the view that a “soft landing” can be engineered to avoid a sharp economic downturn after the past few years’ growth, Japanese Prime Minister Tomiichi Murayama said in a news conference that “the world economy is in a process of firm recovery, despite marginally slow growth.”

A senior White House official said the group’s communique reflected the view of most of the seven countries that they have “good chances for better growth next year.” In 1994, growth in the seven nations averaged 3.1%, and it is expected to slow further this year.

The communique and the leaders carefully avoided saying anything publicly about Japan’s economy, the shakiest of the seven because of a plunging stock market and a looming banking crisis. Japanese officials insisted that nothing be said publicly about their troubles.

But the leaders did discuss those issues privately, aides said. Clinton urged Murayama at their meeting Thursday to act quickly on his banking system’s problems and to increase government spending to promote growth, one U.S. aide said. Murayama said his government was working seriously on the problems, the aide added.

On other issues, the seven leaders:

* Agreed to a proposal from French President Jacques Chirac to hold a “jobs summit” in France next year to discuss ways to reduce stubbornly high rates of unemployment, especially in Europe, where in France and Italy the rate is above 12%. The meeting, similar to a conference held in Detroit this year, would be held at the level of Cabinet minister.

* Said they would continue pressing for more open trade, especially in the areas of financial and telecommunications services. “We reaffirm our commitment to resisting protectionism in all its forms,” they said. The Japanese used the statement to taunt the United States to drop its threat of 100% tariffs on luxury Japanese models.

* Endorsed an earlier statement by their finance ministers that the dollar had fallen too low and called for an “orderly reversal” of its decline. Chirac denounced currency market speculation as “the AIDS of our economies” and said he wants to make the issue a focus of next year’s summit in Lyons, France.

* Agreed to work to make the new World Trade Organization “an effective institution” and a “well-functioning and respected dispute settlement mechanism.” A U.S. official said the Administration agreed to that clause and did not consider it to be a criticism of Clinton’s decision to threaten unilateral trade sanctions against Japan.

* Called for reforming the United Nations to eliminate unnecessary spending and overlap among its agencies. At the same time, they called on U.N. members to meet their financial obligations to the organization--an implicit demand that the United States pay millions of dollars in unpaid past assessments.

* ROOTS OF DISPUTE: Dangerous miscalculations on both sides may be at the core of the U.S.-Japan trade fight. D1