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G-7 officials pledge action against soaring energy prices

Group sees growth in economic future

WASHINGTON -- Finance officials from the world's seven richest countries sought to calm jittery financial markets by pledging yesterday to take forceful action to deal with soaring energy prices and other problems that could undermine global growth.

A joint statement from the G-7 officials said that worldwide economic expansion ''remained robust" and that the outlook was for ''solid growth" this year.

But the officials said the recent jump in oil prices was a ''headwind" to growth. They also stressed the need for the United States to address its surging budget deficit and for Europe and Japan to deal with workplace barriers that are restricting growth.

''Vigorous action is needed to address global imbalances and foster growth," the joint statement said.

The statement followed talks hosted by Treasury Secretary John Snow and Federal Reserve chairman Alan Greenspan. Participants came from the United States, Japan, Germany, France, Britain, Italy, and Canada.

On Friday, Wall Street had its worst single-session loss in nearly two years, a selloff blamed on investors' concerns that rising oil prices threaten to derail the economic recovery in the United States and other industrial nations.

Snow said the joint statement should send a strong signal that the major economic powers are monitoring the energy situation and taking necessary action. He urged Congress to pass President Bush's stalled energy bill, which would open Alaska's Arctic National Wildlife Refuge to oil exploration.

''We are much better able to absorb the headwinds of high energy prices, but it still hurts," Snow said.

Snow said the administration was ''strongly committed" to reducing a budget deficit, which is projected to reach a record $427 billion this year. Other G-7 nations said that lowering that deficit was essential to reducing Washington's need for foreign financing of both the budget and trade deficits.

''It's clear that the financing of the American deficit by foreign, mainly Asian, central banks that has been increased over past years cannot be continued," said Germany's finance minister, Hans Eichel.

The G-7 officials expressed optimism that the economy would grow at a solid rate this year, an outlook they base on favorable factors such as subdued inflation and central banks' interest-rate policies.

But the group warned against complacency and said the major economic powers must act on various fronts: the United States to cut its record budget deficits, Europe and Japan to undertake workplace reforms.

The G-7 discussions were held in advance of weekend meetings of the 184-nation International Monetary Fund and World Bank.

IMF members were to hear from UN Secretary General Kofi Annan on the need for rich countries to give more aid to poor nations. That approach fits into Annan's efforts to overhaul United Nations operations.

The finance meetings, held a few blocks from the White House, took place under heavy security.

A few hundred demonstrators at a park across from the World Bank's headquarters carried signs and colorful puppets. Protesters sought greater debt relief for poor countries and expressed opposition to the selection of Deputy Defense Secretary Paul Wolfowitz, one of the architects of the US-led war in Iraq, to be the new head of the World Bank.

''We're not crying wolf . . . we're decrying Wolfowitz," read one sign.

Recognizing the problems that confront the world economy, the G-7 officials said higher oil prices ''are a headwind and the expansion is less balanced than before."

Their statement endorsed the need for major economies to adopt ''flexibility in exchange rates." That phrase is seen as an effort to prod China to stop directly linking its currency to the US dollar and allow market forces to set the yuan's value.

American manufacturers contend that China's current policy had undervalued the yuan by as much as 40 percent, giving that country a huge competitive trade advantage.

After the G-7 meeting, Snow said China has done enough to prepare for a switch from a fixed-rate currency to one whose value is set by markets. ''The next step is to do it," he said.

France's finance minister, Thierry Breton, said that in the group's discussion on China, ''it was clear that the yuan is undervalued and there was a consensus that China has to address this."

Chinese officials insist they need more time to get their banking system prepared for a floating currency.

The G-7 statement endorsed the goal of providing as much as 100 percent debt relief for poor nations. Differences are not settled yet, however, between competing plans advanced by the United States and Britain.

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