*EPF114 04/26/2004
Text: G-7 Countries View Favorable Prospects for Strong, Broad Growth
(U.S. Treasury secretary, also upbeat, sees high energy prices as risk) (2280)

High-level representatives of the most industrialized countries say prospects for strong and broad-based global economic growth are "favorable" but rising energy prices and other developments may slow down the expansion.

In the April 24 statement finance ministers and central bank governors from the Group of Seven (G-7) countries, which includes Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, said that the global economic recovery has continued to strengthen since they met in February.

In a prepared statement after the meeting issued the same day Treasury Secretary John Snow said the U.S. economy was leading the way but added that good news extends beyond it.

"Japan has turned in several good quarters, as has the United Kingdom," he said.

At a press briefing, which followed his statement, Snow said that a rise in oil prices could slow global growth. But he suggested that inventory-building rather than insufficient production may be a major contributor to price hikes.

He said that, in his view, there was still a lot of headroom for both the U.S. and world economy to expand without causing inflation. Moderate price adjustments are to be expected, Snow said, but low inflation outlook is the most likely scenario, he added.

Nevertheless, the G-7 statement said that sound public finances and fiscal consolidation as well as tax and labor market reforms are essential to push the economy to deliver "stronger and more balanced global growth, boost employment, and raise incomes."

The officials said that "rapid progress on and early conclusion of" the World Trade Organization (WTO) negotiations is also necessary to accelerate and broaden global growth and that such progress will require all parties to move to resolve key outstanding differences.

The so called Doha Round of the WTO talks has stalled after the September 2003 ministerial meeting in Cancun, Mexico, collapsed over differences between developed and developing countries on how to deal with subsidies, particularly farm supports.

The G-7 officials said that economic situation in many emerging markets, including Argentina, has improved. Nevertheless, Snow said that developing countries should take advantage of current favorable circumstances to implement reforms that will help achieve lasting stability.

The G-7 officials said they continue to focus on defining an appropriate mission and objectives for the IMF and the World Bank, making sure that both organizations are up to the present and future challenges.

They called on other countries to join the G-7 in reducing the debt of Afghanistan and Iraq. Snow said that financial authorities of Iraq are making "considerable" progress in many areas and said he expects "strong" support for the needs of Iraq and Afghanistan when the G-7 officials meet with ministers from the Middle East later in the day.

The G-7 officials also discussed the role of private sector in development and ways of making the use of both official and unofficial financial systems, as Snow put it, "costly and difficult" for terrorists.

Following are the texts of the G-7 and Snow's statements:

(begin text)

The Department of the Treasury

Statement of G-7 Finance Ministers and Central Bank Governors -- April 24, 2004

The global economic recovery continued to strengthen and broaden since we met in February. Prospects are favorable, and although risks remain, such as energy prices, overall the balance of risks to the outlook has improved. Additional pro-growth reforms are essential to deliver stronger and more balanced global growth, boost employment, and raise incomes. As part of the Agenda for Growth, we discussed our priorities for tax and labor market reform. We reaffirmed our commitment to sound public finances and monitored implementation of strategies for sustained medium term fiscal consolidation as economies recover. Progress in these fiscal areas and in the Agenda for Growth are key to addressing current global imbalances. To deliver faster and more widespread global growth, and to fight global poverty, rapid progress on and early conclusion of the Doha Round is imperative and will require action by all parties to resolve key outstanding issues.

We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely and cooperate as appropriate. In this context, we emphasize that more flexibility in exchange rates 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 mechanisms.

Economic fundamentals have improved in many emerging market countries. Yet, sustained and sound policies are essential to support lasting growth and reduce external vulnerabilities. In the case of Argentina, progress has been made, but further progress is required.

In developing countries, the private sector is key to growth and poverty reduction. Small businesses play a critical role, but unfavorable business climates are often a constraint. We call on MDBs [multilateral development banks] to accelerate the development of joint action plans with governments to improve investment climate and to scale up their support for small businesses with specific measurable results. The G-7 met entrepreneurs from developing countries and reiterated support for their efforts. We urge private sector views to be consistently included in MDB assistance plans. On remittances, we will continue to work on our initiatives to reduce barriers that raise the cost of sending them and to integrate remittance services in the formal financial sector. We are committed to working with governments, the private sector, and MDBs to broaden the access for families and entrepreneurs to financial services.

Official development assistance, including more effective use of grants, will remain key. We reaffirm our commitment to fight global poverty and to help countries achieve the international development goals of the Millennium Declaration through our work on debt sustainability, aid effectiveness, absorption capacity, and financing facilities.

As part of the preparation for the Sea Island Summit and to mark the 60th anniversary of the Bretton Woods Institutions, we continued our Strategic Review of these institutions. Our focus is on giving clarity to official sector policy and objectives, increasing accountability, and country ownership. We are committed to improving the delivery and results of their programs and policies.

We met again with Ministers from key countries to strengthen the fight against terrorist financing. We call on all countries to meet their commitments to tighten asset-freezing regimes, to prevent abuse of non profit organizations, and to stop cash transfers used to finance terror. We strongly welcomed the IMF/World Bank commitment to comprehensive assessments. We reaffirmed our commitment to further enhance transparency and supervisory standards in financial markets, in particular non-compliant off-shore centers.

Economic growth and job creation in the greater Middle East are a shared priority. We will meet with regional Ministers this evening to discuss their reform efforts and regional economic integration including through financial reform and private sector growth. We stand ready to assist Iraq, Afghanistan, and West Bank and Gaza in their development efforts. We reviewed progress on the Afghanistan Action Plan, including the positive results of the Berlin conference. We call on others to join us in reducing the debt burdens of Iraq and Afghanistan.

(end text)

(begin text)

The Department of the Treasury

Statement by U.S. Treasury Secretary John Snow following the G-7 Finance Ministers' Meeting

April 24, 2004

Good morning. I was very pleased to host fellow G7 Ministers and Governors here in Washington.

The unifying theme of our discussions was economic growth. The strengthening global recovery provided an upbeat backdrop. The United States is leading the way, thanks to President Bush's jobs and growth tax relief program. Last month, 308,000 jobs were created. Growth accelerated to 6.2 percent in the second half of 2003 -- the fastest in almost 20 years. Business investment posted double-digit increases in the same period. Manufacturing activity is increasing. Productivity growth remains exceptionally high. Homeownership is at an all-time high, the economy is generating jobs, and unemployment has declined. Growth in the first quarter of this year is expected to be in the 4 to 5 percent range, according to private sector estimates. What's more, in my view, there is still a lot of headroom for this economy to grow and expand in a non-inflationary way.

Beyond the United States, there is also good news. Japan has turned in several good quarters, as has the United Kingdom. In continental Europe, there are some encouraging initial signs of an upturn, but growth still lags in too many areas and thus needs to be more broad-based.

We all agreed today that now is the time to redouble our efforts to strengthen and broaden growth for the future. We reviewed the progress made under the Agenda for Growth, including, key steps on tax reform, and labor markets flexibility. But we also agreed that additional pro-growth reforms are essential to boost employment and raise incomes. We focused in particular on the importance of low marginal tax rates in encouraging job creation and income growth.

Of course, sound fiscal policies are also fundamental to sustained growth, and we underscored the need for fiscal consolidation during times of expansion. In the United States, we are operating with an unwelcome, but manageable and understandable, short-term deficit which we are taking action to reduce dramatically. I reiterated President Bush's commitment to deficit reduction, which will cut the deficit in half over five years, restoring it to a level below the 40-year average in terms of the size of our economy.

Economic fundamentals are also strengthening in many emerging markets countries and higher global growth will reinforce the gains from stronger policies. Countries should take advantage of current favorable circumstances to implement reforms that will help achieve lasting stability.

Turning to development, the Bush Administration has consistently emphasized the powerful role that the private sector can play in promoting growth. This was a key driver of discussions over the last two days. We urged the MDBs to step up their efforts to and promote more financing for small businesses --- which can play a key role in creating jobs and growth. And we took the unprecedented step, along with other members of the Development Committee, of meeting with entrepreneurs from developing countries. Their stories were compelling and should help inform work in this area going forward.

We also stepped up our work on remittances. Remittance flows, at nearly $100 billion globally, exceed total official development assistance and are critical sources of income for millions of households in many developing countries. Yet, many barriers exist that make sending money expensive and limit the potential development impact of the funds. We are each working to address these barriers in our own countries. Today, we committed together to work with other governments, the private sector, and the MDBs to broaden access to financial services in developing countries. This means facilitating greater competition in remittance services, encouraging increased participation in the formal financial system, and promoting financial deepening in the recipient economies.

As part of our Strategic Review of the international financial institutions, we agreed this weekend to build on recent reforms --- including collective action clauses, transparent limits on large scale assistance, and the increased use of grants by the World Bank -- and to explore new directions toward a modern international financial policy framework. This includes improving IMF assessments of economic policies and potential risks and refocusing the IMF and World Bank on their core mandates. We want institutions that deliver results based on modern management principles and that contribute to stronger growth and higher incomes for people throughout the world. We will develop these themes further as we prepare for Sea Island.

I had a very positive and constructive meeting with the Finance Minister of Iraq, Kamel al-Kaylani, and Central Bank Governor Sinan Al-Shabibi yesterday. They are making considerable progress -- enacting a new central bank law based on international best practices and liberalizing interest rates. Significant progress has also been made on licensing foreign banks and they are working on a T-bill market. Both Iraqi officials reported that economic progress continues to take place in their country and I was pleased to hear about the ongoing economic and financial reconstruction. Our commitment to support Iraq is unwavering.

The recent tragic events in Madrid and Riyadh underscore that combating the financing of terrorism remains a priority. Ministers and Governors met with senior officials from key countries, the World Bank, the IMF, the European Commission, and the Financial Action Task Force to discuss how to improve our asset freezing regimes, stop cross-border transfers of cash to terrorists, and provide attractive alternatives to underground money transfers. We strongly welcomed the IMF/World Bank commitment to comprehensive assessments of the entire anti-money laundering and terrorist financing standard.

The economic challenges in the greater Middle East are a key focus. Regional ministers will join us for dinner this evening to discuss economic reform --- notably how to work together to advance financial sector reform and private sector growth. I expect strong support for economic reform efforts in the region, as well as for the needs of Iraq and Afghanistan.

The G-7 Action Plan released in February demonstrated the international community's stalwart commitment to Afghanistan. The recent donors' conference in Berlin, which raised pledges of $8.2 billion over three years, further stressed that commitment. The Afghan authorities have entered into a staff-monitored program with the IMF, providing a detailed framework for their policies.

(end text)

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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