03 October 2004	Sunday	17 Shaban 1425

WASHINGTON, Oct 2: Facing a global economy on the mend but threatened by surging oil prices and other factors, IMF and World Bank policymakers opened two days of meetings on Saturday to discuss ways to keep the recovery on track.

Finance ministers or central bank governors representing all regions of the world are meeting at a time when the world economy is in its best shape in nearly three decades, according to the International Monetary Fund. But while the global economy is projected to expand a healthy five per cent in 2004, the prognosis for next year is uncertain in the face of oil market volatility.

The IMF and World Bank meetings follow on the heels of a gathering Friday of the Group of Seven (G7) industrial powers, joined for the first time by China.

The G7 affirmed in its final statement that "global economic growth is strong and the outlook for 2005 remains favourable."

Yet the G7 highlighted potential stumbling blocks, including high oil prices that will dent growth.

"Over the last year, the global recovery has become increasingly well established and broad-based geographically," IMF Managing Director Rodrigo Rato said in remarks to the IMF's International Monetary and Financial Committee. But he stressed that central banks needed to be vigilant to control inflation in the face of the expansion. And besides oil prices, there are risks due to US deficits, sluggish growth in Europe and a still-tense global security situation.

"With the oil market remaining highly vulnerable to shocks at current production and capacity levels, and with softer-than-expected incoming data in the United States and some other countries, the risks to the outlook have shifted to the downside," the IMF chief said.

"In the short run, geopolitical risks remain very much present. ... There is also a risk that inflationary pressures could prove stronger than expected."

US Treasury Secretary John Snow said high energy prices "reduce the level of disposable income that people have to use for other claims," noting that US consumer sentiment had weakened in the second quarter.

"I don't think we're going to have a recession, but what I'm worrying about is a slowing of this good growth in the world economy," he said.

China, whose economic importance has become impossible to ignore, was an important focus of the G7 and was also expected to be part of the IMF and World Bank discussions.

The G7, which includes Britain, Canada, France, Germany, Italy, Japan and the United States, drew from earlier statements about increased flexibility of exchange rates, seen as a message mainly to China.

Many in the G7 and elsewhere fear that China's currency peg at 8.3 yuan to the dollar has distorted global trade flows and will take away from economic growth elsewhere in the world.

"All countries and regions need to play their part in addressing the global imbalances," Rato said.

"The key policy requirements include medium-term fiscal consolidation in the United States to boost national savings, structural reforms to boost growth prospects outside the United States and exchange rate flexibility in Asia. Some welcome steps have been made with regard to the first two requirements even though much remains to be done, but little progress has been made on the third."

The G7 also took note of increased agitation for action by rich countries to ease the debt burden carried by the world's most impoverished nations, many of which spend more on debt servicing than on social welfare.

"We are now committed to addressing the sustainability of debt of the poorest countries by making progress on debt relief and grant financing," the statement said. But ministers stopped short of endorsing a proposal by Britain to write off its share of debt and avoided any mention of proposals advocated by development activists for a 100 percent cancellation of obligations carried by poor nations.

The G7 also called on Argentina to reach an agreement with its holder of bonds from its spectacular 2001 default and to make economic reforms sought by the IMF.

IMF policymakers, gathering under heavy police guard, went behind closed doors Saturday.

Participants were ferried in vans to IMF headquarters in the early hours of the morning through a part of downtown Washington that had been sealed off to traffic and pedestrians without credentials - even though no major protests were expected.

The Department of Homeland Security in early August reported that international financial institutions could be terrorist targets, but IMF and US officials quoted in local press reports said no additional information on the threat had been received.-AFP