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.