G7 Countries: Oil Prices Threat to Economy

WASHINGTON – Declaring that high oil prices are a threat to the global economy, the world’s industrialized countries urged producers Friday to provide price relief by boosting supplies.

The Group of Seven countries – the United States, Japan, Germany, France, Britain, Italy and Canada – also resolved to agree on providing battered Iraq with relief from its massive debt burden while also working on a deal to increase debt relief for the world’s poorest countries.

The joint statement issued by finance ministers and central bank presidents of the G-7 countries also repeated the officials’ desire to see all nations move to flexible currency systems. That was an appeal to China to drop its current system, which American manufacturers contend contributes to huge trade deficits and the loss of U.S. factory jobs.

The statement on currency flexibility represented a victory for the Bush administration, which is trying to use international pressure to bolster its campaign to get China to halt its practice of pegging its currency to the U.S. dollar.

U.S. manufacturers contend policy has undervalued the yuan by as much as 40 percent, giving Chinese companies a big competitive price advantage over U.S. companies.

The Bush administration, which has been pressing China for more than a year to allow the value of its currency to be set by financial markets, also won a pledge earlier Friday from the Chinese to work harder to move toward a flexible exchange rate system.

Democratic presidential candidate John Kerry has attacked President Bush for not being tough enough with China and not doing enough to protect American manufacturers, who have shed nearly 3 million jobs in the past four years. The administration says its diplomatic efforts to lobby China to change its currency policy are beginning to show results.

On a day when oil prices closed at a record high $50.12 a barrel, the G-7 said: “Oil prices remain high and are a risk.”

To deal with the situation, the G-7 financial officials urged oil-producing countries to “provide adequate supplies to ensure that prices moderate.”

The G-7 said it also was important for oil-consuming nations to increase energy efficiency, and the International Energy Administration should accelerate efforts to provide better quality of data on oil resources and production.

On Iraq, the G-7 officials restated their goal of reaching a framework for an agreement by the end of the year that would reduce the country’s $120 billion foreign debt.

Russian Finance Minister Alexei Kudrin told reporters that major disagreements remain among the G-7 countries over how much debt relief should be provided Iraq. He said that the French and Germans were pushing a proposal that would forgive 50 percent of Iraq’s s debt by the end of the year, then go back to the question in three years when conditions in Iraq might be more stable.

“The major difficulty is the decision has to be made under great uncertainty” that besets Iraq, Kudrin said. “The conflict is not over, and we need to seek new formats and solutions.”

The dispute over resolving Iraq’s debt also spilled over into G-7′s efforts to provide relief to the world’s poorest countries.

France has insisted that Iraq not get a better debt deal than is being offered to the poor nations, thus thwarting so far the U.S. drive to speed debt relief to Iraq.

In an effort to resolve the issue, the Bush administration put forward its own debt proposal to provide significant debt relief for poor nations. Other G-7 countries complained that the proposal was not paid for.