KEY POINTS:
WASHINGTON - A top US Treasury Department official said today that key global financial officials will devote much of their time to analysing how to calm uneasy global markets when they meet on Friday.
"Clearly recent financial market turmoil will be a focal point and a good part
of the G7 meeting will be devoted to this issue," Treasury Under Secretary David McCormick said at a briefing ahead of the gathering of finance ministers and central bankers from the world's rich nations.
Severe upheaval in US subprime mortgage markets, where foreclosures are mounting and banks are feeling the impact, has been passed on to other countries where investors bought the securities made up from portions of the US housing loans.
The G7 comprises the United States, Britain, Canada, France, Germany, Italy and Japan. Their finance chiefs will discuss world economic conditions, trade and reform of global lending institutions and issue a closing communique summarizing their conclusions on Friday night.
McCormick said US economic fundamentals "remain strong" as does the global economy, though the United States recognizes it must boost savings and cut its government budget deficit.
He dodged a question on the sensitive issue of the US dollar's decline, which some European G7 officials feel has been extreme and at their cost, by saying that only Treasury Secretary Henry Paulson could comment.
Paulson repeated on Tuesday in a Fox Business Channel interview that a strong dollar was in the US interest. The dollar has declined significantly over the past year, making US exports more competitive in foreign markets but also raising the hackles of some European trade partners, like France, that complain they are bearing an unfair burden in helping reduce US trade imbalances.
McCormick pointed to an area of agreement between the United States and Europe in their joint bid to persuade China to let its tightly managed currency appreciate more rapidly.
"The United States has been public for some time about the importance of China's movement to a market-determined exchange rate," he said, "We welcome the efforts of the Europeans to make that case to China as well."
McCormick said generally healthy global economic conditions "provide a strong platform for addressing market turbulence" and said authorities were cooperating to ward off systemic risks from queasy markets that could derail global expansion.
"There are signs that financial market conditions have begun to stabilize in some areas, although we recognize that it will take some time to work through the recent difficulties," McCormick said.
In a sign the G7 was unlikely to come up with many substantive conclusions about the cause of the financial market upheaval, McCormick stressed "careful analysis" was needed.
"We must undertake this work quickly, but we cannot rush to judgment," he said.
The G7 will hold a session on Friday with several countries that have so-called sovereign wealth funds which invest they surpluses that they have accumulated through trade.
FUNDS CAUSE WORRY
The funds are large enough that some countries worry they carry so much power that they need to keep their guard up against their activities. McCormick said another concern was to ensure that the some countries do not seize upon the existence of such funds as justification for enacting protectionist legislation that runs against the spirit of free trade.
But some countries including the United States already operate agencies to screen foreign investment proposals in order to ensure national security is guarded. The Committee on Foreign Investment in the United States, or CFIUS, has discouraged some foreign proposals to buy into US industries in the past.
"We seek to discuss the implications of these funds for an international financial system fundamentally based on the principle of private sector allocation of resources to their most efficient uses," McCormick said.
Following the G7 meeting, members of the International Monetary Fund and World Bank will meet over the weekend.
McCormick said the United States will keep pressing for the IMF to implement a tougher role in maintaining surveillance over how countries operate their currency exchange rate systems.
The United States and others have been pressing for China, in particular, to allow more flexibility in how its yuan currency's value is set.
- REUTERS
