G-7 powers try to boost global confidence
By Glenn Somerville
WASHINGTON (Reuters): Dispelling gloom about murky global economic prospects was as much the point of a weekend gathering of leading economic powers as specifying what each country should be doing to fix the situation, analysts said on Sunday.
Finance ministers from the Group of Seven (G-7) industrial nations, after a half-day meeting on Saturday to discuss how to counter a downturn that has deepened in the past six months, emerged with a surprisingly sunny assessment.
"Although global growth has slowed over the past year, the foundations for economic expansion are sound," said a communique issued by the group -- the United States, Britain, Canada, France, Germany, Italy and Japan. "In fact, the prospects for improving the world standard of living are compelling."
That struck analysts as remarkable, given that the International Monetary Fund ratcheted down its forecast for global growth to 3.2 percent from nearly 5 percent last year.
"There's at least a public show of confidence that the world economy can recover with just a gentle nudging for governments to do more to take on pro-active policy positions," said economist Lynn Reaser of Banc of America Capital Management Inc. in St. Louis, Missouri.
U.S. Treasury Secretary Paul O'Neill, host for the G-7 session, was at pains to offer guidance to other countries only in terms that avoided any criticism of current policy.
He emphasized there had been no attempt to persuade the European Central Bank to emulate the U.S. Federal Reserve's aggressive interest-rate cutting this year.
Instead, he highlighted the United States' bid to get its own economic house in order through cheaper credit and a proposed income-tax reduction that the Bush administration is trying to push through Congress by June 1.
"In the U.S., we're on track to make good on the idea that the U.S. can be a strong engine of growth for the world economy and it's my hope and expectation that others will do the same," O'Neill said.
On Sunday in an address to the IMF's policy-making committee, O'Neill repeated his confidence in U.S. efforts to stimulate economic activity and gently suggested others like Europe and Japan could do more.
"Others, too, need to contribute to strong global growth," he said.
Economist Allen Sinai of Decision Economics Inc. in Boston said it seemed evident that the G-7 participants tried to ensure that "differences in views on monetary policy and on the risks faced by the U.S. economy were glossed over."
But he said that was not necessarily a bad thing in the context of a queasy economic outlook.
"There is clearly a feeling at the IMF, the World Bank and within the G-7 that confidence is a big part of human behavior at a time of uncertainty and so keeping confidence up is a valuable policy tool for them," Sinai said.
Greater comity offers a residual benefit by giving the finance leaders time to gain confidence in one another, especially with O'Neill newly at the helm as the Bush administration's top economic policymaker and a new finance minister in place in Japan, Masajuro Shiokawa.
"Policymakers' decisions are most important when things are not going well, so it's important that they sit down and get to know one another when there are not active crises," said economist Mark Zandi of economy.com in West Chester, Pennsylvania.
The process is likely made easier if they are not feuding about the policies that each region should be practicing to boost growth, he added.
O'Neill's performance at the G-7 was under close scrutiny, partly to see if the new Bush administration might be less committed to regular consultation within the G-7, which becomes the G8 briefly when Russia joins its periodic discussions as a not-quite-full member.
"For those of us analysts who had some questions whether a change in (U.S.) administration might mean a change in the collaborative way of dealing with our allies, this (communique) is a welcome statement," Sinai said.
"I think it's very important that we do have a collaborative forum like the G-7, G-8, to discuss these and other issues relating to a healthy global economy."
O'Neill, a former chief executive officer with a businessman's hard-eyed approach to problem-solving, has shown a zest for tackling issues that are often seen as outside Treasury's main interests.
He helped arrange US$10 billion in new aid for Turkey that is to be offered through the IMF and World Bank under innovative terms that mean the money flows only after the financially ailing country introduces market-oriented reforms.
On Saturday, he expressed interest in a U.S. contribution to a global program to fight AIDS and other infectious diseases.