Strategy to rebuild economy of Iraq is agreed
The overthrow of Iraqi president Saddam Hussein and the fall in oil prices should remove a large risk to the health of the world economy, according to the meeting of central bankers and finance ministers in Washington DC over the weekend.
The meetings of the Group of Seven industrialised countries, the International Monetary Fund and the World Bank, also reached agreement in principle for the bank and fund to begin work on rebuilding Iraq's economy, suggesting that a potentially damaging dispute over the legitimacy of Iraqi reconstruction had been defused.
Some countries, particularly France and Germany, had been concerned that the United States - as the lenders' largest shareholder - would use the institutions to bypass the UN while still claiming multilateralism.
But the IMF and the bank said they would help only if all their shareholders were on board.
"The IMF and World Bank stand ready to play their normal role in Iraq's redevelopment at the appropriate time," a communique issued after the meeting of the IMF's policy-setting committee in Washington said. "We support a further UN Security Council resolution," it added.
Committee leaders appeared relieved at the willingness of finance chiefs to agree on the need for a UN resolution.
"It's an enormously positive step forward," said the British Chancellor of the Exchequer, Mr Gordon Brown, who is also chairman of the International Monetary and Financial Committee.
And, raising the possibility of restructuring or forgiving some of Iraq's debt to give the oil-rich but crippled country a boost, the committee said: "It is important to address the debt issue, and we look forward to early engagement of the Paris Club (group of creditor nations)."
Meanwhile, the G7 ministers said the tentative recovery should accelerate in the second half of the year with the return of consumer and business confidence.
"Growth in most of our economies has been subdued, though uncertainties have diminished," the G7 communique said.
"Many uncertainties are now behind us and we are cautiously optimistic about the world economy," said Mr Francis Mer, the French finance minister.
The IMF's ministerial committee confirmed that the fund's radical plan for a new bankruptcy procedure for insolvent governments had failed to gain enough support but agreed a set of reforms restricting its rescue lending to crisis-hit countries.
The reforms are intended to restrain large bail-outs, which ministers say can induce reckless behaviour by borrowers and investors.
Criticism over the US's proposed tax cut and its rising fiscal and current account deficits, which had evoked concerns from European policymakers at the last G7 meeting in February, was muted. Most euro zone ministers suppressed their concerns over the twin deficits out of a recognition that their own record on boosting global growth was poor.
"You have to look at it very carefully," said Mr Hans Eichel, the German finance minister. "You get the question back: what are you doing to stimulate growth?"