DUBAI, 20 September 2003 — Finance ministers from the world’s seven richest nations meet in Dubai from today amid growing optimism over the state of the world economy, but with concerns about exchange rates and high deficits casting a shadow over the nascent recovery.
The meeting of economic leaders from the G-7 group of most industrialized nations comes after the IMF gave a relatively upbeat assessment of the world economy in its World Economic Outlook released here this week, but warned the upturn was only fragile and remained exposed to numerous risks.
The International Monetary Fund raised its growth forecasts for the United States and Japan, but slashed its predictions for Europe, whose economic recovery has so far proved far less robust than in the other major global economies.
The G-7 leaders will have to examine the dangers to the world economic upturn from the colossal US current account deficit as well as the effects of a recovery that is looking severely uneven across the world.
“There is a serious risk that the emerging global recovery could harbor the seeds of its own demise and be short-circuited in the next 12 to 18 months,” said Charles Dallara of the Institute of International Finance.
Western nations and institutions are also making increasingly vocal calls for Asian countries, especially China and Japan, to allow their undervalued currencies to appreciate and thus give competing economies a better chance to find export markets.
They fear that the currency issue could impede the global recovery in the medium term and create massive problems for Europe, whose battered economy is already lagging well behind its more resurgent competitors. One source told AFP yesterday that the question of exchange rates would certainly be on the agenda, with one delegation pushing for a mention of the dollar’s value in the final communique.
But the G-7 was most likely to call for “flexibility” in exchange rates, rather than make any explicit reference to the rate of the dollar against Asian currencies in the statement, the source said.
US manufacturers claim that China’s yuan - which has been pegged at around 8.3 to the dollar for the past decade - is undervalued by about 15 percent, clobbering US exports.
The US administration has argued forcefully that China should change its currency peg, but Treasury Secretary John Snow failed to persuade Beijing to give ground on a recent trip to the region.
Europe has also backed the US position, albeit less assertively, with European Central Bank chief Wim Duisenberg complaining the burden from a fall in the dollar is landing exclusively on the shoulders of the euro.
ECB officials said Duisenberg would meet with his Chinese counterpart Zhou Xiaochuan in Dubai. China, which is not a member of the elite G-7 group (Britain, Canada, France, Germany, Italy, Japan and the United States), is by no means the only Asian country expected to come under pressure for its currency policies.
Japan is also in the sights of its partners for intervening in the foreign exchange markets to curb the strength of the yen and boost the competitiveness of its own exporters.
Meanwhile, the simmering row over the European Union’s budget policy should also be apparent, with France and Germany explaining why have once again broken the bloc’s rule of not running deficits over 3 percent of GDP.