G-7 Meet Amid Oil Fears, Market Losses

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

A joint statement from the finance minister said 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 (search) 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 G-7 (search) officials declared in their joint statement.

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

Wall Street (search) on Friday had its worst single-session loss in nearly two years, a sell-off 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 (search) stalled energy bill, which would open an Alaskan wildlife refuge to oil exploration. Bush used his Saturday radio address to make the same point, saying U.S. families and small businesses are feeling the pinch from rising gasoline prices.

"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 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 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 cutting its record budget deficits, Europe and Japan undertaking workplace reforms such as making it easier to hire and fire workers.

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

IMF members were to hear from U.N. 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 U.N. operations.

The finance meetings, held a few blocks from the White House, took place under heavy security, but police did not expect demonstrations to match those from previous years.

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 U.S.-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 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 U.S. 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 its financial system 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, told reporters that in the G-7 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.

Chinese finance officials accepted invitations to attend the two previous G-7 meetings. But the Chinese make clear they would appear at the current session, an apparent signal they did not want to be lobbied more intensely on the currency issue.

The G-7 statement endorsed the goal of proving as much as 100 percent debt relief for the world's poorest countries. Differences are not settled yet, however, between competing plans advanced by the United States and Britain.