G-7 Leaders Vow to Ward Off Recession

Leaders of the world’s biggest economies pledged Saturday to take further steps if needed to head off a global recession and promised to intensify their efforts to cut off the flow of funds to terrorists.

Representatives of the Group of Seven nations--the United States, Canada, Japan, Britain, France, Germany and Italy--declared their determination to keep the Sept. 11 attacks from crippling the world economy.

But the G-7 finance ministers and central bankers stopped short of promising to act in concert to cut interest rates or launch new tax and spending initiatives to prevent the global slowdown from deepening.

“We are strongly committed to bringing forward needed measures to increase economic growth and preserve the health of our financial markets,” the G-7 officials said in a joint communique. “We will continue to monitor exchange markets closely and cooperate as appropriate.”

The nuanced language reflected differences among the G-7 nations over the use of monetary and fiscal policies to spur economic growth. The United States, which is experiencing a more severe downturn, favors more aggressive action. The European nations, which tend to be more concerned about the prospect of inflation, seem inclined to move more cautiously.

“I think the important thing is that we’ve agreed that we should all be doing the things that are appropriate and meaningful in the context of our individual economies,” said Treasury Secretary Paul H. O’Neill.

The declarations came at the conclusion of a daylong, closed-door meeting hosted by O’Neill and Federal Reserve Chairman Alan Greenspan at the U.S. Treasury building.

The allies issued a joint action plan to combat terrorism by freezing the financial assets of suspected terrorist Osama bin Laden, a prime suspect in the Sept. 11 hijackings, as well as those of other suspected terrorists.

They said they would work together to implement a series of United Nations resolutions aimed at cracking down on terrorism. They called on the Financial Action Task Force, a multinational organization scheduled to meet in Washington later this month, to adopt a series of measures to locate and confiscate terrorist funds.

The G-7 officials did not specify what additional steps they were willing to take to stimulate the world economy, which is feeling the effects of a “synchronous” slowdown in major industrialized nations.

They said “decisive action has already been taken to support a robust recovery,” a reference to previous interest rate cuts and other measures undertaken since the attacks.

The global economy was already slowing significantly before terrorists flew hijacked airliners into the World Trade Center and the Pentagon nearly a month ago. Many economists now think a recession in the United States is inevitable, and the contagion is likely to spread around the world.

The Federal Reserve has reduced short-term interest rates by 4 percentage points since January in an effort to entice consumers to keep spending and businesses to start investing again. The White House and Congress have tried to spark a recovery too, mailing out $38 billion in tax rebates, approving $45 billion in emergency spending and promising to pass as much as $75 billion in new tax cuts and spending increases.

Although European and Japanese central bankers lowered interest rates in concert with the Fed in the week after the terrorist attacks, economists say they have not moved as aggressively as their U.S. counterparts. Meanwhile, the ability of their governments to lower taxes or boost spending is limited by higher levels of debt and, in come cases, inflation.

Before Saturday’s sessions began, O’Neill said he would encourage his colleagues to consider “rifle shot” stimulus possibilities. Horst Kohler, managing director of the International Monetary Fund, urged the G-7 nations to consider further easing of monetary and fiscal policies to shore up their own economies, and along with them, those of the rest of the world.

Among the G-7 nations, Japan has its own set of problems. It is experiencing its fourth recession in 10 years, and its central bank already has lowered interest rates all the way to 0.5% with little positive effect on the economy.

Russian Finance Minister Aleksei Kudrin was invited to participate in Saturday’s discussions because the G-7 nations regard Russia as an important participant in the anti-terrorism campaign. Before the talks began, Kudrin told reporters he had already pledged Russia’s full cooperation.