Group of 7 Seeks Oil-Price Relief

The shock of oil above $50 a barrel Friday prompted the world’s richest nations to call for a little help.

Finance ministers from the world’s wealthy nations, warning that high oil prices posed a threat to the global economy, urged producing and consuming nations to take steps to bring supply and demand in balance.

Leaders of the Group of 7 industrial nations also called for more flexibility in exchange rates, a message that appeared to be aimed in part at Chinese currency policies. They also pledged to do more to reduce debts of poor countries.

The G-7 countries -- the United States, Britain, Germany, France, Italy, Japan and Canada -- presented their issue agenda after closed-door deliberations hosted by U.S. Treasury Secretary John W. Snow.

“Right now, oil prices are causing an economic headwind,” Snow said. “The finance ministers and I are committed to promoting policy reforms in each of our countries to speed the return of more-reasonable costs.”

The G-7’s prescriptions were expected to help frame discussions during meetings this weekend of the International Monetary Fund and the World Bank, the international financial institutions that have become lightning rods for concerns about globalization.

As G-7 finance ministers and central bankers huddled in the U.S. Treasury building, police cordoned off a wide swath of downtown Washington in response to intelligence warnings that terrorists might target the IMF and World Bank meetings.

But there was no sign of trouble in the streets. Only 70 or so protesters showed up for a kickoff rally in support of Third World debt relief. Four years ago, 20,000 activists participated in rowdy street protests aimed at the IMF and the World Bank.

In a communique issued after hours of deliberations, G-7 leaders said global economic growth remained strong and the outlook for 2005 remained favorable, but high oil prices presented a threat to continued expansion.

The spot market price of crude oil has topped $50 a barrel in recent days, responding to unexpectedly high demand by consuming countries, the limited ability of producing countries to boost output, and political instability in Nigeria and the Middle East.

“This is not a time for complacency,” the ministers said. “Oil prices remain high and are a risk.”

G-7 officials called on oil producers to pump as much as possible to help bring prices down. “We are urging the countries with reserves to do everything they can to make sure supplies are adequate,” Snow said.

The officials urged consuming nations to take steps to increase energy efficiency. They encouraged the International Energy Agency, a multinational group, to improve its oversight of world oil markets.

On currency policy, the G-7 called on major countries to adopt flexible exchange rates so that currency values can continuously adjust to changes in supply and demand instead of being subject to imbalances that can threaten economic stability.

Earlier Friday, U.S. finance officials secured a commitment from their Chinese counterparts to allow their currency, the yuan, to respond to market forces instead of maintaining a fixed exchange rate with the dollar.

In a statement, the U.S.-China Joint Economic Committee, comprising finance officials from both countries, said China would “push ahead firmly and steadily to a market-based flexible exchange rate.”

Although the timetable remained vague, the pledge appeared to signal China’s sensitivity to a practice economists say has contributed to America’s record trade deficit and put U.S. manufacturers at a competitive disadvantage.

Bush administration officials have been lobbying Chinese officials for months to move toward a flexible currency system, which would allow the yuan to appreciate in relation to the dollar and make U.S. goods more competitive overseas.

Although China is not a member of the G-7, the group invited Chinese officials to dinner Friday evening. Snow said China’s economic situation was discussed, and he was encouraged by China’s willingness to address currency practices.

“Sustained, noninflationary growth in China is important for maintaining strong global growth, and a more flexible and market-based ... exchange rate is an important part of achieving this goal,” Snow said. “Tonight, I underscored that I would like to see China move more quickly.”

University of Maryland trade economist Peter Morici said the emphasis on oil prices and currency policy reflected global economic realities.

“Debt relief helps the poor, but what really matters to the G-7 economies is the price of oil and the Chinese currency peg,” Morici said, noting that a sustained $10-a-barrel increase in crude oil prices would reduce world economic growth by about 0.5%.

“That will have much more profound consequences for the poor in developing countries than any debt relief the G-7 can offer,” he said.

The G-7 statement on debt relief said wealthy nations “are now committed to addressing the sustainability of debt of the poorest countries by making progress on debt relief and grant financing.”

But it stopped short of endorsing a specific plan for reducing the remaining debt loads of poor countries, which have complained that debt payments reduce their ability to spend money on AIDS treatment and poverty alleviation programs.

Debt-relief advocates said they were disappointed that the G-7 apparently did not resolve differences among its members on the subject. This week Britain issued a specific plan calling for the use of IMF gold reserves and contributions by creditor countries to erase the remaining debt of poor countries. The U.S. said it was considering proposals for 100% debt relief; it refrained from endorsing the British proposal.

As G-7 finance ministers and central bankers met inside the Treasury building, a small crowd of demonstrators gathered across the street. Holding neon-hued placards and banners, they called for full debt cancellation for the world’s poorest countries.

“The time to cancel the debt is now,” said Jack Jones Zulus, a Zambian who is active in the Jubilee campaign for poor-country debt relief. “Debt in Africa, debts in the Third World are chokingly high.”

After the rally, protesters began an all-night vigil. They chanted, sang and held white crosses symbolizing the debt of poor countries. Police reported no problems.