Rising Oil Prices Worry Finance Ministers

Treasury Secretary John Snow, right, speaks as Federal Reserve Chairman Ben Bernanke looks on during the start of the G7 finance ministers and central bank governors meeting in Washington Friday, April 21, 2006. (AP Photo/Charles Dharapak)

By Jeannine Aversa, AP Economics Writer

Finance Officials From World's Leading Industrial Powers Express Concern About Rising Oil Prices

WASHINGTON (AP) -- Finance officials from the world's leading industrial powers expressed concern Friday about zooming oil prices and vowed to take action to prevent the global economy from getting knocked off course.

 

The pledge by finance ministers and central bank presidents from the Group of Seven countries comes on the same day that oil prices in the United States shot up to a new record high of $75.17 a barrel.

Even though the world economy is now in good shape, "risks remain from oil market developments, global imbalances and growing protectionism," the finance officials said in a joint statement released after a closed-door meeting.

The United States, Japan, Germany, France, Britain, Italy and Canada make up the group.

Policymakers encouraged countries to examine ways to curb the world's appetite for energy and boost exploration and production.

"We urge investment in exploration, production, energy infrastructure and refinery capacity," the finance officials said. "We remain committed to greater energy efficiency, conservation and diversification, which will improve the balance between supply and demand."

They also called for improving the timeliness and accuracy of information about the oil market, which may help to reduce price gyration and make companies more willing to invest in new production facilities.

Underscoring the importance of the matter, some big oil exporters -- Saudi Arabia, Russia and the United Arab Emirates -- joined the seven industrial powers for some of their discussions. Australia and China also participated.

Thus far, the impact of lofty energy prices on the global economy has been moderate. The International Monetary Fund is predicting the world economy will grow by a solid 4.9 percent this year, up from 4.8 percent last year.

There are worries, though, that energy prices, which have set records in recent days, could end up crimping economic activity and fanning inflation around the globe.

"Oil prices remain high and buffeted by geopolitical developments," Treasury Secretary John Snow observed.

French Finance Minister Thierry Breton said the G-7 ministers, who spent much of the meeting talking about oil prices, wanted to "create a kind of cushion between supply and demand to allay, not shocks, but fear that there will not be enough supply and prices will take off."

Breton said new Federal Reserve Chairman Ben Bernanke joined European Central Bank chief Jean-Claude Trichet in stressing the need to keep the brakes on inflation.

On another matter, the finance officials kept the pressure on China to revamp its currency system.

"Greater exchange-rate flexibility is desirable in emerging economies with large current account surpluses, especially China," the finance officials said.

Getting Beijing to let its currency, the yuan, move more freely with market forces is of keen importance to the United States, which has racked up a record $202 billion trade deficit with China.

U.S. manufacturers say China is keeping its currency artificially low, making Chinese goods cheaper in the United States and U.S.-made goods more expensive in China. The situation, U.S. manufacturers say, has hurt exports and contributed to the loss of U.S. factory jobs.

President Bush told Chinese President Hu Jintao at the White House on Thursday that he would like to see Beijing make more progress on revaluing its currency, but they failed to produce an agreement.

Skewed trade and investment around the world -- referred to in economic parlance as "global imbalances" -- also were confronted again by the finance officials.

The United States is criticized for contributing to these imbalances with its swollen budget and trade deficits. The U.S. plan to halve the budget deficit by 2009 was called "unambitious" by the IMF earlier this week.

Finance officials outlined in detail what steps countries need to take to help get rid of these global imbalances.

They urged the United States to get its fiscal house in order, take steps to boost savings and address massive spending on entitlements -- such as Social Security and Medicare -- raised by the looming retirement of the baby boom generation.

Finance officials said Europe and Japan also had roles to play to curb these global trade and investment imbalances. China and other Asian countries also need to undertake greater exchange-rate flexibility, among other things, to do their part, the finance ministers said, calling it a "shared responsibility."

The ministers joined in support for ways to sharpen the IMF's focus. They embraced the IMF strengthening its policing of foreign exchange practices around the globe -- something the United States had advocated.

The G-7 officials also embraced the notion of making changes at the fund to better reflect individual countries' standing in the world economy. They called on the IMF to come forward with concrete proposals in time for the annual IMF meeting in Singapore this fall.

White House spokesman Scott McClellan welcomed such reform efforts, saying Friday the IMF and its member countries need to prepare for "the challenges of the modern global economy."

In another matter, work will continue on a pilot project that would encourage drug companies to come up with vaccines for diseases that strike poor countries. Finance officials said they hoped that a project could be launched sometime later this year.