WASHINGTON, Oct. 2 (UPI) -- Surging oil prices was of foremost concern to finance ministers and central bankers who met in Washington Friday.
The top economic officials of Britain, France, Germany, Italy, Canada, Japan, and the United States were united in calling for having greater transparency in the global energy market and to ensure greater efficiency in the markets.
"Oil prices remain and are a risk," said the joint G7 statement following the ministerial meeting.
"So first, we call on oil producers to provide adequate supplies to ensure that prices moderate. Second, it is important that consumer nations increase energy efficient. Third, it is important for consumers and producers that oil markets function efficientl and we encourage the (International Energy Agency) to enhance its work on oil data transparency," the statement said, adding that "we will return to the issue of medium term energy demand and supply at our next meeting."
But while crude oil prices are around $50 and many industry analysts expect the prices to climb even higher, in light of demand climbing steadily from rapidly industrializing nations especially China and India on one hand, and continued geopolitical uncertainties in oil-producing countries on the other. Moreover, with winter fast approaching, many fear that a cold season would add further strain to an oil market which is already feeling an intense squeeze amid high demand.
Nevertheless, the G7 group remained upbeat about global economic prospects going forward, as it reaffirmed that the growth outlook for 2005 remains favorable. Yet earlier in the week, the International Monetary Fund warned that should oil prices continue to rise next year, then it could hurt consumer confidence as well as business spending worldwide. The IMF estimates that for every $5 increase in petroleum costs, global GDP falls 0.3 percentage points on average. For 2005, the agency anticipates global growth to reach 4.3 percent, down from 5.0 percent this year, while U.S. growth is project to decline to 3.5 percent in 2005 from 4.3 percent in 2004.
At a press conference late Friday following the G7 meetings, U.S. Treasury Secretary John Snow acknowledged the risks higher energy costs are posing on the nation's growth going forward.
Higher oil prices "act like a tax" and curb spending by reducing disposable income, Snow said.
But while he acknowledge that there may be a "soft patch" in the economy as a result of higher prices, Snow reiterated that those risks could be mitigated.
Other ministers, however, were less upbeat about being able to deal with higher energy costs under the current system.
Speaking to reporters on the sidelines of the official talks, Japanese finance minister Sadakazu Tanigaki told reporters on the sidelines of the talks that it was as important to address the problem of higher oil prices not merely from the supply side, but also from the consumption end.
Tanigaki elaborated on his comments at a press briefing after the official talks, and stressed the need for industrialized nations to consider the need for energy conservation. He argued that the time had come for the world's richest nations to think hard about what can be done to deal with higher energy prices as the world's biggest consumers of energy. As a nation that effectively imports all its energy supplies, Japan has been a leader in coming up with energy conservation policies on a national level, while many manufacturers are heavily invested in developing products that are fuel-efficient. Indeed, Japanese auto manufacturers continue to lead the way in developing hybrid cars and other automobiles that use up less gasoline.
Meanwhile, the G7 were united in pressing China to have a more flexible currency regime. The country made its debut to the G7 gathering Friday, albeit as an observer.
"We emphasize that more flexibility in exchange is desirable for major countries or economic areas that lack such flexibility to promote smooth and widespread adjustments in the international financial system, based on market mechanism," the G7 statement said.
The Chinese yuan continues to be pegged to the U.S. dollar, and many currency analysts argue that the unit is kept deliberately low in value so that Chinese exports can be cheaper and thus more competitive in international markets.
Snow told reporters that while the Chinese authorities broadly agreed to the need for the country to float its currency, he nonetheless was *not satisfied with the rate of progress made."
On the issue of debt relief for Iraq, meanwhile, the G7 failed to reach an agreement, as the Europeans continue to call for a 50 percent write-off of the country's total debts accumulated under Saddam Hussein's regime, while the United States is calling for nearly all the debt to be written off completely.
Snow said that while giving details of the discussions between ministers would "violate confidentiality," he said that member countries had reached an agreement that a "substantial debt redcution" would be needed in Iraq, even though he would not elaborate further.
