Finance Chiefs Show Optimism, Prod China

By Anthony Faiola and Kevin Sullivan
(c) 2009, The Washington Post

WASHINGTON — Financial ministers from major nations expressed cautious optimism Friday that the global crisis may be touching bottom and also called on China to continue "its commitment to move to a more flexible exchange rate."

The Group of Seven finance ministers — a club of wealthy nations made up of the United States, Japan, Canada and the major nations of Europe — reached no new agreements during their gathering in Washington. Pledging to continue hammering out the details of a $1.1 trillion plan made by world leaders in London earlier this month to combat the global recession, they said they were making progress on specific commitments from a variety of nations to boost funding at the International Monetary Fund by hundreds of billions of dollars. Officials will meet again Saturday and Sunday for the annual spring meetings of both the IMF and the World Bank.

Notably, the finance ministers suggested that China should move toward a more flexible exchange rate, effectively acknowledging criticism by the United States and other Western nations that the Chinese have been keeping their currency artificially weak to boost exports.

The G-7 meeting was followed by a less formal gathering of the Group of 20 nations, which also includes China, Brazil, India and other major countries with developing economies.

The G-7 ministers expressed optimism that the crisis is ebbing and that global growth could return by the year's end. Their meeting, however, came on a day with mixed signals from the global economy. In the United States, new-home sales came in slightly better than expected, and Ford's losses, while steep, beat analysts' expectations. But trouble signs persisted. In Britain, for instance, the economy shrank 1.9 percent during the first three months of the year after shrinking 1.6 percent in the fourth quarter of 2008 {ndash} marking its worst performance since at least 1948.

The new figures mean that the British government will probably have to borrow even more than the vast amounts announced earlier this week to fund its ambitious recovery plans, analysts said.

That massive borrowing — already more than $1 trillion over the next five years — has caused a storm of criticism from opposition leaders who say it will saddle Britain with a "decade of debt." And it gave new ammunition to political opponents who say that Prime Minister Gordon Brown's prediction of a return to economic growth before the end of this year is unrealistic.

Britain has Europe's second-largest government deficit as a percentage of gross domestic product — better than only Ireland and roughly the same as Romania, according to European Union statistics.

"There is not one other major country in the world in a position as bad as the United Kingdom," David Cameron, leader of the opposition Conservative Party, said Wednesday.

In Washington, after the G-7 concluded, Treasury Secretary Timothy Geithner struck a note of optimism. "Financial conditions in some markets have shown modest improvement, and there are signs that the U.S. housing markets are beginning to stabilize," he said.

The meetings Friday underscored the lingering importance of the G-7, which had long served as the leading global forum for debating financial issues. As the financial crisis has unfolded in recent months, however, it has seemed to be supplanted by the larger Group of 20 nations. Case in point: It was the leaders of G-20 nations, not the G-7, who hatched the $1.1 trillion plan in London earlier this month to combat the global financial crisis.

But wealthy nations still appear eager to have it both ways and are clinging to the G-7 — where their power is greatly amplified — as a more pragmatic forum for hammering out some of the more dicey details needed to make that $1.1 trillion dream a reality.