WASHINGTON – Treasury Secretary John Snow on Saturday warned that soaring oil prices, large trade and budget deficits and protectionist policies could undermine the well-performing global economy.
In remarks to an International Monetary Fund committee, Snow cited such threats to the economic outlook.
"We need to be vigilant about risks from oil market developments, the unwinding of global imbalances, protectionist pressures and balance sheet vulnerabilities," according to comments released by the Treasury Department in advance of the private meeting.
World finance leaders see a need to address the twin problems of skyrocketing oil prices and the massive trade imbalances between the United States and other countries. But the leaders acknowledged there are no quick fixes to these threats to global growth.
Finance ministers and central bank presidents from the seven major industrial countries pledged in a statement late Friday to try to find a solution. Their statement followed after a day of discussions led Snow and Federal Reserve Chairman Ben Bernanke.
The talks among the G-7 nations — the United States, Japan, Germany, France, Britain, Italy and Canada — were a prelude to broader negotiations this weekend at the 184-nation IMF and its sister lending institution, the World Bank.
Unlike in previous years, anti-globilization groups did not plan large demonstrations at the meetings. Their focus was on smaller events to make clear their view that the IMF and World Bank are not doing enough to alleviate poverty.
Oil prices reached a record $75.17 per barrel on Friday. Gasoline prices in the United States rose to an average of $2.86 per gallon, more than 60 cents above the level of a year ago, according to an AAA survey.
The G-7 officials pledged to "strengthen the dialogue between oil producers and consumers to further improve market transparency through the release of more complete and timely data on production, consumption and inventories."
The finance ministers invited their counterparts from the two largest oil producers, Saudi Arabia and Russia, to dinner Friday night, along with finance officials from a big producer, the United Arab Emirates. Finance officials from China, a major energy importer, participated.
French Finance Minister Thierry Breton said the G-7 countries were exploring ways to create extra reserves to ally fears that "there will not be enough supply and prices will take off."
British Chancellor of the Exchequer Gordon Brown said the group also discussed the need to increase refinery capacity.
All agreed that the issue would take years to resolve, especially as rapidly growing economies such as China's consume more of the world's oil reserves.
The G-7 also discussed the issue of global imbalances — record U.S. trade deficits and the huge surpluses by China and others. The G-7 nations spelled out in a statement what they believe needs to be done by individual countries — lower budget deficits and increased private saving in the United States and greater exchange rate flexibility in China, for example.
President Bush failed to make headway on this issue during a meeting Thursday with Chinese President Hu Jintao. That opened the possibility that the Treasury Department could designate China as a currency manipulator in an upcoming report to China.
Members of Congress want to impose 27.5 percent penalty tariffs on all Chinese imports unless China stops undervaluing its currency to gain trade advantages against American products.
The administration opposes such a step. But it also has warned of a protectionist backlash in this country unless China moves faster to overhaul its currency system.