Economic policy makers conclude Washington meetings
Monday, April 14, 2008
The Group of Seven (G7), which is comprised of the economic policy makers from the United States, United Kingdom, France, Germany, Italy, Canada, and Japan, held its annual meeting on Friday, April 11. This meeting, which rotates locations, was also held in Washington, D.C.
The Development Committee meeting ended on Sunday, with a call from the economic leaders for assistance to the countries which been adversely affected by rising food prices. Economic growth has slowed to its lowest rate in five years, while the rising costs of food and energy have not slowed.
"All that has been done [in the past decade] can be undone very rapidly by the crisis coming from the increase in food prices," said Dominique Strauss-Kahn, the managing director of the IMF.
"Children will be suffering from malnutrition, with consequences for all their lives," he said. He cited the growing use of land foras contributing to rising food costs. In the end growing violence and civil unrest could be a result.
Strauss-Kahn further warned that eventually it could become "not only a humanitarian question," but could also affect developed nations by leading to trade imbalances.
Specifically cited as a current example was Haiti, where just this weekend, violence escalated resulting in the death of a United Nations peacekeeper and the ousting of Prime Minister .
cautioned that affected countries "need to resist the temptation of price controls and consumption subsidies that are generally not effective and efficient methods of protecting vulnerable groups."
|We have to put our money where our mouth is. Now. So that we can put food into hungry mouths. It's as stark as that.|
—Robert Zoellick, World Bank president
Price controls and subsidies "tend to create fiscal burdens and economic distortions while often providing aid to higher-income consumers or commercial interests other than the intended beneficiaries," Paulson said.
In their Friday statement, the G7 said "there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability." This marked the first time since the February 2004 meeting in Boca Raton, Florida, that the wording on foreign exchange has been altered.
The G7 presented a plan to strengthen regulation of capital markets. They urged financial firms to "fully" disclose their at-risk investments and improve capital reserves. While the G7 did not outline new monetary or fiscal policies, it did promise action "as appropriate." The timetable for the plan is 100 days.
|While action is unlikely in the short run, they are probably already considering a pre-emptive move in foreign exchange markets to slow the dollar's decline.|
The head of G7 Market Economics at, Lena Komileva, observed, "The implicit message is that the G7 is moving closer towards concerted action in the event that persistent volatility in the foreign exchange market presents new risk of systemic failure in the financial industry."
"While action is unlikely in the short run, they are probably already considering a pre-emptive move in foreign exchange markets to slow the dollar's decline," added Komileva.
Economists attold their clients, "After a period where the possibility of G7 policy intervention seemed very remote, providing no counterweight to the dollar depreciation forces, we are moving towards a regime where G7 intervention is a more real possibility."
- Harry Dunphy. "World Bank Leader Urges Action on Food" — , April 14, 2008
- Steven R. Weisman. "Finance Ministers Emphasize Food Crisis Over Credit Crisis" — , April 14, 2008
- Alex Spillius. "Soaring food costs risk 'starvation and unrest'" — , April 14, 2008
- Kevin Carmichael. "G7 blindsides currency markets" — , April 14, 2008
- Nick Olivari. "G7 statement may help slow dollar's decline" — , April 14, 2008
- Simon Kennedy. "G-7 May Have to Act Before Sustained Dollar Rebound" — , April 14, 2008
- "World economic leaders act to counter financial, food crises" — , April 14, 2008
- Barry Wood. "Economic Policy Makers See Food Crisis as Major Problem" — , April 13, 2008
- John Brinsley. "Paulson Says Developing Countries Should Avoid Price Controls" — , April 13, 2008
- Press Release: "Development Committe Communiqué" — , April 13, 2008 PDF (41 KB)