G-7 Ministers Urge U.S., Japan to Foster Growth (Update1)
By Farah Nayeri, Iain Rogers and Mayumi Otsuma
Palermo, Italy, Feb. 17 (Bloomberg) -- Facing the gloomiest global outlook since the Asian financial
crisis of 1997, finance ministers and central bankers from the Group of Seven leading industrial
nations will call on the U.S. and Japan to do more to boost growth.
Meeting in Palermo, Italy, the G-7 will press U.S. Treasury Secretary Paul O'Neill -- making his
debut at the forum -- and Japanese Finance Minister Kiichi Miyazawa for assurances on how
quickly the world's top two economies can pick up speed.
The two ministers began the day with their first one-on-one meeting, and the first test of O'Neill's
plan to change the way the U.S. deals with Japan. O'Neill has said he won't give specific
economic advice to the Japanese in public, in contrast to his predecessors in the Clinton
administration.
A two-paragraph Treasury Department statement issued after the meeting kept to that policy,
saying O'Neill and Miyazawa ``agreed that it is important for the sound and sustainable growth of
the global economy that they cooperate and closely exchange information and views.''
O'Neill and Miyazawa discussed the conditions of their respective economies, U.S. economic
policy, and international financial issues, the statement said, without providing details. Federal
Reserve Chairman Alan Greenspan and Bank of Japan Governor Masaru Hayami also attended
the meeting.
Japan Weak Link
The U.S. officials told their counterparts that Japan can right its economy, although there are
concerns about the health of the Japanese banking system because it provides most of the
funding for Japanese companies, according to a senior Japanese Finance Ministry official who
attended the meeting. He briefed reporters on condition he not be further identified.
The benchmark Nikkei stock average has shed about a third of its value in the last year. New
rules requiring Japanese banks to value their stock holdings at market rates could push some
banks' capital ratios below international standards, making them technically insolvent.
The world's second-largest economy contracted in the third quarter of last year, raising the
prospect the country could sink back into recession.
U.S. Economy
The other members of the G-7 -- the U.S., Germany, the U.K., France, Italy and Canada -- may
urge the Bank of Japan to cut interest rates and repair the banking industry. On Feb. 9, the BOJ
cut the symbolic discount rate while leaving the benchmark interbank rate on hold.
``I suppose Japan would have been told many things by other G- 7 members if the BOJ hadn't
cut the discount rate,'' Miyazawa said. ``I think the G-7 will consider Japan as having done what it
can afford to do.''
Still, Miyazawa added: ``The next question (that G-7 members may want to ask) is how effective
the rate cut will be.''
The U.S. Federal Reserve last month lowered its benchmark interest rate by a full percentage
point as manufacturing slumped. U.S. industrial production declined in January for a fourth
consecutive month in January.
Greenspan told Miyazawa and Hayami during their meeting that most recent U.S. economic
numbers are encouraging, and growth since January has been steady, the Japanese Finance
Ministry official said. Employment, home sales and auto sales have all come in stronger than
expected. So did retail sales, which in January posted their largest rise since September.
`Very Optimistic'
Meeting last night with Italian Treasury Secretary Vincenzo Visco, O'Neill ``seemed very
optimistic on prospects'' for a soft landing for the U.S. economy, Visco said. ``There seems to be
full agreement between'' the Treasury secretary and Greenspan on prospects for the U.S.
economy, he said.
Greenspan told Congress this week that U.S. growth appears to be picking up.
Still, Japanese executives are nervous about the effects of the U.S. slowdown. ``When America
catches cold, Japan catches pneumonia,'' said Yoshiharu Fukuhara, chairman of Shiseido Co.,
Japan's largest cosmetics maker. He voiced hope the G-7 will ``ask the U.S. for determined and
strong action to help head off a further slowdown.''
Europe is in better shape. Most analysts expect the 12 economies that share the common
currency to outgrow the U.S. this year for the first time in a decade. European officials say that
their economies won't be hurt much by the U.S. because American customers buy just 13 percent
of the region's exports.
European Rate Cut
The G-7 ministers will urge European leaders to continue efforts to open their economies. U.K.
Chancellor of the Exchequer Gordon Brown told O'Neill in a separate meeting that Europe should
accelerate the pace of economic reform, according to a U.K. spokesman.
Some European business executives wouldn't mind a G-7 call for the European Central Bank to
lower interest rates. The ECB held its benchmark rate at 4.75 percent Thursday, though most
economists predict the ECB will reduce borrowing costs by the end of June.
``We'd benefit if the ECB lowered interest rates,'' said Thierry Breton, chief executive of Thomson
Multimedia SA, a French maker of consumer electronics, said this week. ``It would help customers
spend more.''
Visco said he expects a rate cut in 2001. ``This will automatically happen,'' he said.
O'Neill also met separately today with his counterparts from France and Russia.
Russian Finance Minister Alexei Kudrin sought to reassure O'Neill and the other G-7 ministers that
Russia will repay $5.9 billion in debt owed this year. Russia's request for debt rescheduling
earlier this year met flat opposition from the U.S. and other creditors.
Brown's spokesman said the British chancellor and the U.S. Treasury secretary had agreed on
the need for Russia to repay Soviet era debt coming due in 2001.
No Talk of Currencies
Japanese, Canadian, French, and British officials all said there was no talk of currencies during
their individual meetings ahead of the G-7 session. That's an about-face from the last meeting of
the G-7, on Sept. 24. A day before that meeting in Prague, G-7 nations sold dollars and bought
euros on concern that a slide in the single currency may cause global economic turmoil.
Also hanging over that meeting were oil prices, which had more than tripled since January 1999.
Oil prices are down almost 10 percent since the Prague meeting. While the G-7 ministers are
expected to discuss ways to bring down the price of oil, currencies aren't even on the agenda,
Visco said.
The euro is up 4 percent against the dollar, and the yen has shed 7 percent.
``I don't believe there'll be a specific discussion'' on currencies, Visco said. ``The problem of the
euro exchange rate is a non-problem. What counts is the underlying health of the economy. This
euro thing is working,'' he said. |
