BERLIN, 21 November 2004 — Finance Minister Dr. Ibrahim Al-Assaf said yesterday that high oil prices were having little impact on developed countries. “The impact on developed countries is very limited,” he told reporters on the sidelines of a meeting of Group of 20 finance chiefs in Berlin.
But he said that “as far as developing countries are concerned, there is a negative impact.” Assaf said the G-20 members had discussed mechanisms by which to come help these countries including action through the International Monetary Fund or other bilateral measures.
International oil prices surged again this week amid fears on an already-jittery market that a looming cold front in the northern hemisphere could expose energy shortages.
The ministers in Berlin are expecting the price of oil to drop to between $35 to $40 a barrel in the medium term. However the G-20 nations expect oil-producing countries to have little free capacity until 2010, meaning prices will be sensitive to unexpected changes in demand and supply, according to a copy of the draft seen by AFP late yesterday.
The price of a barrel of crude rose more than two dollars on Friday, edging over $48, on worries about supply as winter looms in the United States and Europe and about problems at a refinery in Venezuela.
The ministers opposed “abrupt changes” in foreign exchange rates and oil prices and see a slight slowdown in economic growth next year, German Finance Minister Hans Eichel said yesterday.
Eichel, the host of the G-20 meeting of finance ministers and central bank governors in Berlin, also unveiled a framework agreement by the Paris Club of creditor nations to forgive up to 80 percent of Iraqi debt.
Behind closed doors, delegations of the Group of Seven industrialized nations - Britain, Canada, France, Germany, Italy, Japan and the United States - and of the major emerging economies, such as Brazil, China and India, huddled for two days of working sessions.
The question of the weak dollar and China’s dollar-pegged currency was expected to overhang wide-ranging discussions on an agenda that includes high oil prices, terror financing and debt relief.
Eichel said the G-20 had agreed that global economic imbalances should not lead to abrupt movements in foreign exchange rates.
“The imbalances that are undoubtedly in the world economy should not lead to abrupt changes - we don’t want that in the oil price or in exchange rates,” he told reporters.
He added: “That is our common position.”
Eichel said everyone had to play his part in helping to correct the global economic imbalances.
He said necessary measures included “budgetary consolidation in the United States - (US Treasury Secretary) John Snow explicitly agreed with that - growth-promoting structural reforms in Europe and in Japan, and more (currency) flexibility in Southeast Asia”.
“Those are generally the tasks that everyone has to solve and that everyone agreed to around the table,” he said.
Eichel also said the finance chiefs saw world growth slowing next year, but remaining relatively strong. “We expect ongoing strong growth, (albeit) a little bit weaker next year than this year. That is above all due to the (high) oil price,” he said.
European policy-makers are concerned that the strength of the euro will undermine Europe’s fragile, export-led economic recovery, but central bankers have so far shown little inclination to intervene in currency markets to halt the dollar’s slide.
In a foray into the global financial arena, German Chancellor Gerhard Schroeder yesterday called on the European Central Bank and other central banks to act on the dollar’s slide, saying the euro’s rise against the US currency was “worrying”.
“The European Central Bank and also other central banks should think about doing something themselves, in all respect to their independence,” Schroeder told reporters on the sidelines of the meeting.
Asked whether the United States should try to rein in the dollar’s descent, because the European Union had made efforts on easing Iraqi debt, the chancellor replied: “You can’t link the two of them, but the euro dollar evolution is very worrying. “The reason for that is clearly the twin deficits in the US and clearly a partnership means that you have to do something about it,” he said.
Schroeder questioned the fairness of US suggestions that the euro zone should further pursue economic reforms to stimulate growth and weaken the euro. “It’s difficult to ask Europeans to implement structural reforms - which they are already doing, and at the same time not put a lot of focus on one’s own economic issues,” he said.
A source close to the German government said yesterday that none of the participants at the meeting had declared support for intervention in the forex markets.
