updated 10/1/2004 8:55:57 PM ET 2004-10-02T00:55:57

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.

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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.

China met with finance officials over dinner Friday evening, the first time the country’s officials have sat in on a G-7 event. It could signal the beginning of a process in which the world’s most populous country would be admitted to the group or at least the expanded Group of Eight, which includes Russia.

Victory for White House
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.

Treasury Secretary John Snow, who served as host for the finance discussions along with Federal Reserve Chairman Alan Greenspan, hailed China’s presence at the dinner as an “historic step” for the G-7 and said that the issue of China’s currency system came up in the talks.

“I underscored that I would like to see China move more quickly” to scrap its current fixed-rate currency system, Snow told reporters after the gathering.

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

Pledge from China
Snow, who 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 from the Chinese earlier Friday to work harder to move toward a flexible exchange rate system in a statement issued after a high-level meeting of U.S. and Chinese policy-makers.

Democratic presidential candidate John Kerry has accused President Bush of not being tough enough on 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.

Despite high oil prices, the global economy is expected to grow by 5 percent this year, its fastest pace in three decades, according to a projection by the International Monetary Fund. The IMF trimmed its global growth forecast for 2005 because of the high oil prices.

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.

Debt relief for Iraq a sticking point
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.

Disappointment with help for poor nations
In an effort to resolve the issue, the Bush administration put forward its own debt proposal to provide significant debt relief for poor nations, but the U.S. plan did not offer funding resources — unlike a competing British proposal that would require rich countries to increase their contributions and use IMF gold sales to pay for the expanded debt relief.

Supporters of expanded debt relief expressed disappointment. “Once again rich countries have turned up with their notebooks, not their checkbooks, and the price will be paid by the world’s poorest people,” said Max Lawson, a policy adviser with the international relief organization Oxfam.

The G-7 discussions preceded the weekend meetings of the 184-nation IMF and the World Bank.

Meetings were being held under heavy security after an August announcement that the IMF and World Bank were potential terrorism targets. Several downtown streets were to be closed to traffic as police prepared for anti-globilization and anti-war protests over the weekend.

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

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