G-7 finance chiefs to guard against premature optimism

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WASHINGTON, April 24 Kyodo -
Finance chiefs from the Group of Seven industrial powers will meet Friday in
Washington to underscore the importance of preventing a deeper global
recession, despite some recent positive indications in capital markets and
economic data.
Finance ministers and central bankers from the G-7 will assess the latest
global economic outlook, market developments and the actions taken by them so
far to counter the crisis at a time when there is a glimmer of optimism that
the worst may be over, according to Japanese and U.S. officials.
The officials said the G-7 will warn against the danger of being distracted
from the important task of restoring trust in the financial system and nailing
down commitments made in London by leaders of the Group of 20 in early April.
A senior Japanese Finance Ministry official, who spoke on condition of
anonymity, said a joint statement to be released after the one-day meeting will
not likely set an optimistic tone, given that the chances of the world economy
facing ''downside risks are still much higher'' than it realizing an early
recovery.
But he said it remains to be seen to what extent the communique will reflect
tentative signs that the pace of deterioration in global economic conditions
has slowed.
''It's not that there aren't any positive figures. But, overall, I see that
negative synergies between the financial system and the real economy remain
strong,'' Bank of Japan Governor Masaaki Shirakawa told reporters at a
Washington hotel late Thursday night.
In a similar vein, International Monetary Fund Managing Director Dominique
Strauss-Kahn said Thursday at a news conference, ''Despite a mixed situation,
our belief is that the crisis is far from over.''
The IMF's latest economic outlook report, released earlier this week, said the
world economy is projected to contract by 1.3 percent this year, against the
previous estimate in January of 0.5 percent growth, which was already the worst
pace since World War II.
U.S. Treasury Secretary Timothy Geithner, who will for the first time host a
finance ministers' meeting, is expected to provide some information on the
latest situation of the U.S. financial system to his counterparts from Britain,
Canada, France, Germany, Italy and Japan.
Japanese Finance Minister Kaoru Yosano, who will attend the meeting with
Shirakawa, is scheduled to explain about the country's record 15.4 trillion yen
fiscal spending to show its renewed determination to boost growth.
Japan's latest fiscal spending, equivalent to about 3 percent of its gross
domestic product, was unveiled April 10.
The IMF has called for the need to increase each country's fiscal spending to
at least 2 percent of GDP to fight the spreading impact of the economic
downturn.
The Japanese government is planning to submit an extra budget to the Diet on
Monday, after Yosano flies back to Tokyo from Washington, to finance its
stimulus package, which has a strong emphasis on job creation, assistance for
cash-strapped firms and promotion of eco-friendly products.
The package comes on top of stimulus measures already endorsed by parliament
since last October, with fiscal spending of about 12 trillion yen.
Japan, though struggling with the heaviest debt burden among the industrialized
countries, has joined a campaign of advocating more fiscal stimulus, while some
European countries such as Germany and France have become reluctant to spend
further, instead saying that strengthening financial regulations is more
important.
The G-7 will likely also discuss how to expand the role of the IMF in the
global economy, such as the issue of tripling its leading resources to $750
billion, one of the central achievements of the London summit.
But it is unlikely that foreign exchange will be a major issue at the meeting
of the G-7, according to the senior official.
After the G-7 meeting, finance chiefs from the G-20 are scheduled to meet for
about two hours later Friday to follow up on the April 2 summit.
Given the limited amount of time and the fact that it is only three weeks since
the London summit, there is unlikely to be any tangible outcome, some of the
officials said, adding that the G-20 is not preparing to issue a joint
statement in Washington.
The G-20 economies, representing about 85 percent of global output, will also
likely exchange views on how to carry their discussions to the next G-20
leaders meeting, which is expected to be in September in New York. The G-20
includes the G-7 nations and emerging economies such as Brazil, China, India
and Russia.
A high-ranking BOJ official said it is important for the G-20 policymakers to
establish priorities at this stage, instead of discussing anything new, as the
commitments made in London are already so diverse.
==Kyodo