updated 9/26/2004 6:30:46 PM ET 2004-09-26T22:30:46

The global economy is healthy and no major financial crises loom. Yet finance ministers meeting this week must confront uncertainties about the fight against terrorism, rising interest rates and volatile oil prices.

Debt relief for Iraq and debt forgiveness for the world’s poorest countries also are on the agenda for the ministers and central bank governors from the leading industrialized nations.

Ministers from the United States, Britain, Canada, France, Germany, Italy and Japan are meeting on Friday. Over the weekend, officials from those Group of Seven nations join their counterparts from other countries for the annual meetings of the International Monetary Fund and World Bank.

Late in the week police will set up cordons around the two 184-nation lending institutions that are three blocks from the White House. Unlike in recent years, neither the police nor IMF and bank officials expect major demonstrations.

China makes an appearance
Both institutions are under a heightened security alert after descriptions of their facilities were found this year in documents compiled by the al-Qaida network.

In a sign of their country’s growing importance to the world economy, Chinese finance officials will participate for the first time in the G-7’s dinner meeting. It could be a prelude to China’s permanently joining the group.

Russia, which takes part in some G-7 meetings, will miss that event.

With the world’s ninth largest economy, China consistently has resisted pressure from the G-7 to stop pegging its currency to the U.S. dollar and let it float. That would revalue the yuan upward.

The Bush administration partly blames the dollar peg for the United States’ continuing record trade deficit with China.

American industry, farm and labor groups say China’s fixing its currency to the dollar has kept the yuan undervalued by a significant amount. As a result, U.S. products cost more in the Chinese market and China’s goods are cheaper in the United States and elsewhere.

China is moving toward a more flexible currency, U.S. officials say, and they dismiss suggestions the invitation to the G-7 session was intended to get the Chinese to do more.

Iraq debt burden
As for Iraq, the United States believes it is on the way to securing an agreement with many of Iraq’s creditors to ease the country’s debt burden by year’s end. U.S. officials are hoping to make progress on that goal during the weekend meeting.

Finance ministers are expected to discuss how much to forgive of the $42 billion that Iraq owes the Paris Club of 19 wealthy nations that negotiate collectively with debtor countries on debt relief terms. Among this group, the largest debt-holders are Russia, Japan, France and Germany.

Iraq owes an additional $80 billion to several governments in the Middle East and elsewhere.

Many governments agree that Iraq needs a lower debt so it can move ahead with postwar reconstruction. France and some other nations have questioned whether Iraq, which is rich in oil, should benefit from huge debt reduction when many much poorer countries languish without relief from their debts.

To make a deal on the Paris Club debt, the United States has suggested reducing by billions of dollars the money owed by Uganda, Bolivia and other poor nations. The United States also is suggesting that future aid to poor countries come as grants rather than loans.

President Bush did not mention debt relief in his speech last week to the U.N. General Assembly, indicating that differences on the issue with other nations still must be overcome.

World Bank's concerns
The World Bank president, James Wolfensohn, said the bank “would be perfectly happy to forgive debt,” but worried that member governments might not provide enough money to ensure the bank could keep lending.

The bank uses loan repayments to finance new loans.

Previewing the G-7 and IMF-World Bank meetings, Treasury Undersecretary John Taylor said the global economy “is in a remarkably good situation, growth is strong all over the world, there’s no economy in recession, no major financial crisis, and inflation is down.”

Michael Mussa of the International Institute of Economics, a private think tank, forecast global economic growth of a least 5 percent. That is slightly better than the 4.75 percent predicted in early April, the strongest in two decades.

“But higher oil prices and declining momentum in the U.S. and Chinese economies suggest global growth may fall slightly short of the 4 percent previous forecast for 2005,” said Mussa, former chief economist at the IMF.

Charles Dallara, head of the Institute of International Finance, which represents the world’s main banks, was more pessimistic.

“I certainly do not recall a global economic recovery cycle going back to the 1970s that has been so laced with uncertainties and risk,” he said.

Dallara said this outlook could be a function of oil prices, the terrorism fight and a lack of conviction in the strength of the global economic recovery.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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