G-7 Lauds Global Economic Outlook but Urges More Balanced Growth

The finance ministers of the world’s richest nations, meeting here Saturday, said the global economic outlook is good but the wide divergence in regional performances remains a worry.

“We see improved prospects for noninflationary growth in the major industrial economies and the world economy as a whole,” the Group of 7 nations said in a communique. “The challenge remains to secure a more balanced pattern of growth among our economies.”

The group was responding to the fact that while the United States has continued to defy expectations with its strong economic growth nearly a decade into its recovery, Europe is still not strong enough to inherit the baton and Japan remains a clear laggard.

U.S. Treasury Secretary Lawrence Summers told reporters after the one-day meeting that Japan needs to do more than just rely on government budgets and deficit spending if it wants to engineer sustained domestic growth.

Japan has tried to stimulate its weak economy by spending more than $558 billion in the past two years on roads, bridges and other extraordinary government projects. “But there are limits to the efficacy of fiscal policies,” Summers said. “That’s why [the G-7] placed increasing emphasis on structural policy.” In particular, Summers called on Japan to reform its telecommunications sector.

On another front, Japan came away disappointed in its hopes that the G-7 would support its call for a weaker yen. The Japanese currency has appreciated 10% against the dollar in the past year, which hurts exporters here and eliminates jobs in a Japanese election year.

The group’s remaining members--the U.S., Canada, Britain, France, Germany and Italy--would agree only to some rather vague language about how they share Japan’s concern.

“I think intervention that goes against economic fundamentals does not have much effect,” German Finance Minister Hans Eichel told reporters.

With many stock and currency traders worldwide watching the G-7 meeting closely--and poring over every word coming out of it in search of the smallest hint of policy coordination or new directions--the group steered clear of commenting in any detail on several nettlesome issues. Those included the sustainability of high U.S. stock values, the outlook for global interest rates and the way global structural imbalances could be addressed.

“There are clearly imbalances in the U.S. and Japanese economies, and to sweep them under the rug is quite a concern,” said Ron Bevacqua, senior economist at Commerz Securities (Japan). “But if you don’t sweep them under the rug, then you have to do something about them, and that’s much more difficult.”

The G-7 ministers also said they had made progress on a move to forgive much of the debt owed to advanced nations by the world’s poorest countries. Such debt forgiveness was one of several issues raised by protesters at last year’s contentious World Trade Organization meeting in Seattle.

France announced that it would join Britain and the United States in forgiving 100% of the debt owed to it by the least developed countries, bringing the total projected amount to be forgiven up to $100 billion. Japan, which is owed more than the other nations and therefore has more to lose, has been slower to sign on.

“We congratulate the French government on their announcement today and believe other countries will now consider” similar moves, said Gordon Brown, Britain’s chancellor of the exchequer.

The G-7 also said it is trying to use the current period of relative stability to help safeguard against or better handle the type of financial contagion that occurred during the Asian currency crisis of 1997-98. The efforts include steps aimed at strengthening the International Monetary Fund and improving its loan mechanisms.

The IMF also was the subject of gossipy speculation at Saturday’s meeting. Longtime IMF chief Michel Camdessus announced in November that he would step down in February, two years before the end of his term. That set off a struggle among several European candidates and one Japanese for the high-profile position.

Summers said the issue was discussed at coffee breaks and in hallways but was not an official part of the G-7 agenda.

“We’re seeking a candidate who can command widespread consensus and who will be widely endorsed,” he said.