Trade Deficit Called Global Threat

Financial officials from the world’s seven biggest industrial democracies, meeting in Washington, declared Saturday that global prosperity is threatened by trade imbalances, particularly the widening U.S. deficit.

But in an indication of continuing disagreement between the United States and Japan, they offered no specifics on what should be done.

U.S. Treasury Secretary Lawrence Summers and the finance ministers of the six other nations expressed pleasure over signs that the global economy is considerably more stable than a year ago.

“A number of challenges remain,” including a U.S. trade deficit that hit a record $25.2 billion in July, they cautioned in an 11-page statement.

On at least one issue, the financial officials expressed ready agreement. They unambiguously declared to Russia that there is a “critical need for intensified efforts to combat corruption . . . and money laundering.”

The officials didn’t directly comment on allegations that Russian criminal elements diverted International Monetary Fund aid for their own use and laundered it through the Bank of New York and other institutions. But they did assert “the importance of adequate safeguards to ensure that funds provided by the international financial institutions are used for their intended purposes.”

Before representatives of all seven nations sat down together, Summers and Federal Reserve Chairman Alan Greenspan met with their counterparts from Japan. They urged the Japanese to stimulate their domestic economy so they would consume more of their own goods and rely less on exports for economic growth.

Afterward, Japanese Finance Minister Kiichi Miyazawa told reporters he had assured Summers and Greenspan that Japan would continue to boost government spending to maintain the fragile recovery from its deepest recession since World War II.

Although the U.S. economy has far outpaced those of America’s major allies in the 1990s, officials have said it cannot indefinitely be the engine of worldwide economic growth. One consequence of America’s role has been its massive trade deficit.

The Japanese yen has gained in value against the dollar as Japan’s economy has resumed growing. And the dollar has weakened as the U.S. trade deficit has mounted and dollars have flowed overseas to pay for all the imports.

Japan worries that the newly muscular yen will endanger its economy by making its goods more expensive in international competition. It urged the United States and the five other nations--Germany, France, Italy, Great Britain and Canada--to join in a statement of support for preventing the yen from gaining any further value.

Instead, the joint statement issued at the end of the meeting called on the seven nations to “monitor developments in exchange markets and cooperate as appropriate.”

At week’s end, the dollar bought only about 104 yen, compared with upward of 120 yen in July. The Federal Reserve could try to boost the dollar’s strength by raising interest rates, thus increasing the attractiveness of investment in the United States. This prospect helped spook U.S. financial markets last week and contributed to a 524-point plunge in the Dow Jones industrial average.

The meeting of the seven richest nations occurred at a moment when the challenges facing the global economy appear to be drastically different from a year ago, when Asia was reeling from financial turmoil, South America seemed next in line for economic chaos and Russia’s sudden devaluation of the ruble sent shock waves through financial markets around the world.

“We can . . . take some satisfaction from the fact that conditions in global markets are better than they were a year ago,” Summers declared in advance of Saturday’s meeting. “What is most important now is that we not take this recovery in global confidence for granted.”

At Saturday’s session, the so-called Group of Seven major industrial nations agreed to establish a Group of 20, including wealthy and poor countries, to bring a more diverse set of views to the table when the world’s financial officials meet.