Finance officials from the world’s biggest industrial powers said Friday that soaring energy prices pose a risk to global economic activity and they pledged to do all they can to limit the fallout.
The energy situation was a key agenda item in discussions among finance ministers and central bank presidents from the Group of Seven countries. The United States, Japan, Germany, France, Britain, Italy and Canada make up the group.
“Higher energy prices ... have increased the risks to the outlook,” the financial officials said in a joint statement.
The finance officials encouraged countries and producers to boost investment to increase the supply of oil, and they urged countries to explore alternative sources of energy and to improve conservation efforts. They offered broad suggestions and didn’t get into specifics of how such things could be accomplished.
The G-7 countries also pressed for more timely and accurate information about the oil market, which officials said could help control price fluctuations and make companies more willing to expand oil and gas production.
The finance officials met as fears grow about increasing energy prices — catapulted by Hurricane Katrina that ripped though the Gulf Coast in late August. Energy prices could be pushed even higher by approaching Hurricane Rita, which is expected to make landfall Saturday on the Texas Gulf Coast, home to the nation’s biggest collection of oil refineries.
In another matter, finance officials called for the speedy enactment of a plan to erase billions of dollars worth of debt that poor countries owe the World Bank and other lending institutions.
The G-7 countries called upon members of the World Bank, the International Monetary Fund and the African Development Fund to “expeditiously complete this historic and crucial initiative.”
The plan initially calls for canceling $40 billion in debt that 18 poor countries owe to the World Bank, the IMF and the African Development Fund.
One sticking point has been whether rich countries will pledge enough money to cover the costs of debt cancellation so the World Bank — a big lender to poor countries — isn’t financially strained.
The G-7 countries sought to allay those fears saying, “We remain committed to fully financing this relief.”
In fact, all the G-7 countries along with Russia sent a letter to World Bank President Paul Wolfowitz on Friday, with each country pledging to pay for the full costs of the debt cancellation program.
The debt issue is likely to carry over into the annual meetings of the 184-nation IMF and World Bank on Saturday and Sunday.
“We look forward to quick action to make this historic debt cancellation deal a reality,” said Treasury Secretary John Snow.
On the energy front, oil prices in the United States briefly surged to an all-time high of $70.85 a barrel on Aug. 30 after Katrina made landfall. They have moderated since then and are now trading above $64 a barrel. After Katrina, gasoline prices jumped past $3 a gallon and eventually settled down. Now, economists worry gasoline could top $5 a gallon if Rita were to severely damage Texas refineries.
High energy prices are weighing on global economic activity. The IMF has projected the world economy will grow by 4.3 percent this year and next, a slowdown from the blistering 5.1 percent increase registered in 2004.
For the United States, the costs of rebuilding after Katrina could reach $200 billion or more. Congress has already approved $62 billion. Yet Snow told his colleagues the United States remains committed to slicing the deficit in half by 2009.
“We are committed to a recovery effort that is not only compassionate but also fiscally responsible,” Snow said.
Before Katrina, the White House was estimating the government would produce a budget deficit of $333 billion this year. Economists say rebuilding costs will make the deficit swell further.
The G-7 countries also welcomed a late July move by China to let its currency, the yuan, rise slightly against the U.S. dollar.
For a decade, Beijing had linked its currency directly to the U.S. dollar. That practice has especially irked U.S. manufacturers who contend it has hurt their sales abroad and contributed to the loss of U.S. factory jobs.
On Friday, the Chinese announced they would let their currency move in value by a slightly greater amount against non-dollar currencies. The Bush administration welcomed the step, but analysts said it won’t help narrow America’s huge trade deficit with China.