Brussels, 11/02/2008 (Agence Europe) - G7 finance ministers said, after their meeting in Tokyo, that, while its fundamentals remained solid, the world's economic environment was more challenging and uncertain. Growth was expected to slow in the short term, to varying degrees, in all economies, they said in a press release published on Saturday 9 February. In the United States, output and employment growth have slowed considerably and risks have increased, they said in the final statement, dismissing suggestions of recession and saying they expected US growth to continue in 2008. The member countries said they would continue to take appropriate action, individually and collectively, to ensure the stability and growth of their economies. They said that financial institutions must disclose their losses fully and promptly in order to reduce uncertainty, improve confidence and restore the normal functioning of the markets.
This point was in first position in the interim report to the G7 ministers and central bankers by the Financial Stability Forum (FSF), which will submit its final report at the G7 finance meeting in Washington in April. Picking up on the other points raised by the FSF, the G7 press release recognised the need: (a) to strengthen management of liquidity risks at financial institutions by accelerating the development of an internationally consistent approach by the Basel Committee on Banking Supervision; (b) to improve the understanding and disclosure of banks' and other financial institutions' exposure to off-balance sheet vehicles; (c) to enhance underpinnings of the originate-to-distribute model by ensuring an appropriate incentive structure comes into play; (d) to address potential conflicts of interest at credit rating agencies and to improve the information content of ratings; (e) to implement the Basel II capital adequacy framework. The FSF and the International Monetary Fund (IMF) were asked to consider beefing up their early warning capabilities of potential crises for the world economy and financial markets.
In the current context, the issue of exchange rates was relegated to second position, but the form of words used remained similar to previously. The G7 countries pointed out that exchange rates should reflect economic fundamentals, and called on China to accelerate the appreciation of its effective exchange rate. They also encouraged oil producing countries to raise production to increase supply and cause prices to fall, and they re-stated their commitment to conclude the quota and voice reform within the IMF by the spring meeting of the international Monetary and Financial Committee. (A.B.)