WASHINGTON (AP) – When world finance officials gather this week, they will search for ways to insulate the global economy from a host of threats, from the Iraq war and terrorism to a mysterious new Asian virus.
The Bush administration hopes to begin healing rifts created by the war and getting commitments for the billions of dollars that will be needed to rebuild Iraq.
The annual spring meetings of the 184-nation International Monetary Fund and its sister lending agency, the World Bank, come at a time of unusual uncertainty for the global economy.
While developments in the first two weeks of war have helped bolster stock prices and ease concerns of major oil supply disruptions, investors remain highly nervous and the economies of the United States and other countries remain vulnerable not only to adverse war news but the potential of terrorist attacks.
In the United States, a weak recovery from the 2001 recession has nearly stalled with the government reporting Friday that the country lost another 108,000 jobs in March on top of 357,000 layoffs recorded in February. War jitters made American companies and consumers increasingly cautious.
The slowdown of the world’s largest economy has reverberated to America’s trading partners with forecasters slashing their 2003 growth estimates for Europe and many countries in Asia.
“The escalation of world oil prices and uncertainties surrounding the economic effects of a U.S.-led invasion of Iraq are key factors contributing to the current slowdown and clouding near-term economic prospects,” said Michael Mussa, the IMF’s former chief economist.
For the most part, analysts believe that the United States and the global economy will stage a rebound in the second half of this year, but that is based on an expectation that coalition forces will continue to have success and the fighting will be wrapped up in a matter of weeks.
If war uncertainties were not enough, the world’s airlines and many countries in Asia have been hit by a plunge in travel as tourists have grown fearful about a spreading epidemic from a highly contagious mystery virus.
Against that backdrop, finance ministers and central bank presidents of the world’s seven wealthiest countries will gather Friday night for discussions on how to keep the current slowdown from developing into a full-blown global recession. Those talks will be a prelude to further discussions Saturday and Sunday by the steering committees for both the IMF and the World Bank.
As has become customary, all the discussions will be held under heavy security although the focus of thousands of expected demonstrators this time will be anti-war instead of anti-globalization. Officials of the IMF and World Bank refused to discuss any extra security precautions they planned against possible war-related terrorist threats.
The talks among the Group of Seven nations – the United States, Japan, Germany, Britain, France, Italy and Canada – will be led by U.S. Treasury Secretary John Snow and Federal Reserve Chairman Alan Greenspan. The wealthy G-7 countries will be joined for part of the talks by finance officials from Russia.
Snow will be promoting the administration’s $726 billion new round of tax cuts as the answer to the U.S. slowdown even though Greenspan has expressed his own doubts about whether a new stimulus package will be needed once the war uncertainty passes. U.S. allies have also expressed reservations, contending that that the tax cuts, by driving up government deficits, will put more pressure on scarce global capital.
Private economists said it is crucial given the uncertain global recovery that the finance officials work hard to present a united front on economic issues.
“Financial markets will be looking to policy-makers to demonstrate that economic cooperation will be reinvigorated, not withstanding all the other problems,” said Charles Dallara, head of the Institute of International Finance, which represents the world’s largest banks.
Snow told reporters last week that he will be asking for financial support from the other G-7 countries to help pay for a massive effort to rebuild Iraq and get the nation’s economy functioning again.
“Once we get closure on this war, I hope the international community can come together,” Snow said.
The IMF, which helps countries deal with financial crises, and the World Bank, the leading source of development loans, are also expected to have big roles to play in Iraq’s reconstruction.
The IMF has postponed its plan to unveil a proposal to overhaul the way it handles financial crises by creating in effect an international bankruptcy system, giving countries protection from their creditors similar to the way courts protect individuals who declare bankruptcy.
IMF officials have said the idea will not be advanced at the April discussions, largely because of strong opposition from the Bush administration, which prefers a less-structured approach to dealing with nations forced to default on their loans.
On the Net:
IMF: http://www.imf.org/
World Bank: http://www.worldbank.org/
AP-ES-04-06-03 1425EDT
Send questions/comments to the editors.
