G7 finance ministers yesterday signalled rising concern over oil prices, noting that these "remain high and are a risk" while calling on producers to step up supplies and consumers to increase energy efficiency.
The ministers also called for more flexibility in exchange rates "for major countries or economic areas that lack flexibility to promote smooth and widespread adjustments in the international financial system, based on market mechanisms."
"Excess volatility and disorderly movements in exchange rates are undesirable for economic growth," said the communique. The ministers said that the G7 would "continue to monitor exchange markets closely and cooperate as appropriate". But they added a new call for corrective actions by countries that "lack flexibility" in their exchange rate systems. This was seen as a thinly veiled reference to China.
After a two hour dinner last night including Chinese Finance Minister Jin Renqing and People's Bank of China Governor Zhou Xiachuan, US Treasury Secretary John Snow reported "progress" on the issue of achieving greater exchange rate flexibility for the yuan, but he emphasized that he was still not satisfied.
"I am not going to put a clock on this but progress just as soon as posible is what we want to see," he said.
The two Chinese officials had earlier given an assurance to Snow and Federal Reserve Chairman Alan Greenspan that China would move toward a "market-based flexible exchange-rate as rapidly as possible."
The seven ministers also said in the communique that "global economic growth is strong and the outlook for 2005 remains favourable," but they stressed that "this is not the time for complacency" - while singling out oil prices as a particular threat. "We call on oil producers to provide adequate supplies to ensure prices moderate," they said.
"Second, it is important for consumer nations to increase energy efficiency." Snow said that he's not afraid of the high oil price bringing about economic recession at this stage, but "it could damage the good growth rates that we're seeing in the global economy at present."
UK Chancellor Gordon Brown and German Finance Minister Hans Eichel both called for more transparency in the oil industry to identify the cause of surging prices. "We have to prevent massive speculation," said Eichel.
As for emerging markets these "economies generally face favourable financial conditions," the G7 noted. "Interest rate spreads are low and volatility is down in many markets. We urge emerging market countries to take advantage of favourable global economic conditions to lessen their vulnerability to external shocks." In particular, they urged Argentina to address key challenges such as "building a sound fiscal framework and achieving higher creditor participation in a sustainable debt restructuring".
The ministers also welcomed "the approval by the IMF of a sound and credible programme for Iraq," which they said represents "an important step toward our commitment to resolving Iraq's debt before the end of 2004. We welcome the financial assurance given by Iraq's creditors that made this IMF programme possible."
Reaffirming their commitment to fight poverty, the ministers underscored the need for additional financial aid grounded on the principles of good policies, debt sustainability, accounting for results and enhancing predictability and aid effectiveness. "We are now committed to addressing the sustainability of debt of the poorest countries by making progress on debt relief and grant financing," they said, promising to prepare a "progress report on these efforts by the end of the year".