G-20 shuns action to halt dollar slide

G-20 shuns action to halt dollar slide

Veronica Smith, Agence France-Presse/Berlin

The Group of 20 finance chiefs have shunned action to halt the
dollar slide, leaving Europe isolated at the end of a forum here
on Sunday and facing an almost certain further strengthening of
the euro.

Worried European Union policy-makers, afraid the euro's
strength will undermine the eurozone's fragile, export-led
economic recovery, found no concrete support among the major
wealthy and emerging economies.

The G-20 finance ministers and central bank governors, while
lamenting the "worrying" weakness of the dollar, which hit an
all-time low against the euro last week, agreed to apply various
economic remedies but showed no appetite for market intervention
in Saturday's working session.

China, rebuffing Western pressure to loosen the yuan's peg to
the dollar and share the EU burden of higher-priced exports, said
it was too soon to talk about it.

A bright note, however, was struck on the sidelines of the
meeting by Germany: word of a framework agreement by the Paris
Club of creditor nations to forgive up to 80 percent of Iraqi
debt.

Huddled behind closed doors on Saturday, the G-20 delegations
of the Group of Seven industrialized nations, the European Union
and the principal emerging economies tackled a range of finance
issues but the weak dollar, and the high price of oil, dominated
discussions.

The German finance minister, Hans Eichel, said the G-20 had
agreed that global economic imbalances should not lead to abrupt
movements in foreign exchange rates.

"The imbalances that are undoubtedly in the world economy
should not lead to abrupt changes -- we don't want that in the
oil price or in exchange rates," he told reporters.

Eichel said everyone had to play his part in helping to
correct the global economic imbalances.

He said necessary measures included "budgetary consolidation
in the United States -- (U.S. Treasury Secretary) John Snow
explicitly agreed with that -- growth-promoting structural
reforms in Europe and in Japan, and more (currency) flexibility
in Southeast Asia".

"Those are generally the tasks that everyone has to solve and
that everyone agreed to around the table," he said.

Meanwhile, U.S. President George W. Bush, speaking in Santiago
where he was attending an Asia-Pacific Economic Cooperation forum
summit, insisted he was committed to a strong dollar, despite its
slide against Asian currencies and the euro.

Back in Berlin, German Chancellor Gerhard Schroeder called on
central bank intervention to boost the dollar.

"The European Central Bank and also other central banks should
think about doing something themselves, in all respect to their
independence," Schroeder told reporters on the sidelines of the
meeting.

Schroeder, noting that the dollar's decline was due to the
huge U.S. current account and budget deficits, said: "Clearly a
partnership means that you have to do something about it."

The German chancellor's call apparently fell on deaf ears. A
source close to the German government said none of the G-20
participants had voiced support for intervention in the forex
markets to strengthen the dollar.

For its part China, which takes over the G-20 presidency from
Germany next year, reiterated resistance to moving the yuan --
which has been pegged at about 8.3 to the dollar for the past 10
years -- to a more flexible exchange rate regime.

"It is still not the stage to talk about a specific technical
arrangement," Zhou Xiaochuan, governor of the People's Bank of
China, told journalists.

Also heading the G-20 agenda was the rise in oil prices, and
the means to address supply and demand in the medium term.

According to a draft annex to a final statement obtained by
AFP late on Saturday, the finance chiefs expect the price of oil
to drop to between US$35 to $40 a barrel in the medium term.

However, they expect oil-producing countries to have little
free capacity until 2010 due to inadequate investment, meaning
prices will be sensitive to unexpected changes in demand and
supply.

The price of a barrel of crude rose more than $2 to over $48
on Friday on worries about supply as winter looms in the United
States and Europe and about problems at a refinery in Venezuela.

Meanwhile in Paris, Paris Club creditor nations were
finalizing the details of their agreement to wipe out about a
third of war-torn Iraq's crippling $120 billion international
debt burden.