- The Washington Times - Friday, March 13, 2009

HORSHAM, ENGLAND (AP) - International finance officials searched for common ground Friday amid deep divisions on how to tackle the global downturn _ even as more bad news arrived in the form of figures showing U.S. trade slumping.

Complicating matters, China chose the day the Group of 20 finance ministers and central bankers gathered in southern England to raise warnings about what Washington’s drive to spend its way out of recession might do to U.S. government debt, which Beijing holds in large quantities.

U.S. Treasury Secretary Timothy Geithner was seeking a commitment by other countries to increase spending as a vital part of any rescue effort, after saying earlier this week that it was “time for us to move together and to begin to act.”

But the IMF estimates that only Saudi Arabia, Australia, China, Spain and the United States will introduce budget boosts worth 2 percent of gross domestic product this year, the level that Geithner considers “reasonable.” Many in Europe are calling for better financial regulation, not spending.

And the U.S. spending push faced further headwinds Friday after Chinese Premier Wen Jiabao sent a clear warning: Don’t devalue the dollar _ and China’s estimated $1 trillion in dollar-denominated U.S. government debt _ through reckless spending.

“Of course we are concerned about the safety of our assets,” he told reporters in Beijing. “To be honest, I’m a little bit worried.”

U.S. Treasury spokeswoman Heather Wong countering that concern, saying that the U.S. Treasury market “remains the deepest and most liquid market in the world.”

“President Obama is committed to taking the steps necessary to restore growth and put this country on the path of fiscal sustainability, including cutting the long-term deficit in half over the next four years,” Wong, who is traveling with Geithner, said in an e-mailed statement.

Geithner was holding bilateral meetings with Japanese Finance Minister Kaoru Yosano, whose government backs the U.S. call for more spending, as well as Mexico’s Treasury Secretary Agustin Carstens and European Central Bank Chief Jean-Claude Trichet on Friday. But he had no plans for talks with the Chinese delegation.

The debate on spending or regulation amid the wider G-20 _ which includes emerging powerhouses such as China, India and Brazil along with the world’s wealthiest countries and represents more than 80 percent of the global economy _ is threatening to derail progress here.

The meeting in Horsham, 30 miles (about 50 kilometers) south of London, is to lay the groundwork for a full summit of G-20 heads of state and government April 2 and there are fears that it will do too little to set a common agenda for that gathering.

“The danger now is doing nothing too little, too late,” World Bank President Robert Zoellick warned after arriving in Britain for the meeting. “Incremental changes will prolong and increase risks.”

Arriving at the country lodge where ministers are holding bilateral meetings Friday before a formal dinner and the opening of full round-table talks on Saturday, French Finance Minister Christine Lagarde told reporters she was optimistic that the meeting could get results by discussing economy stimulus plans, global financial regulation and rescuing troubled banks.

Zoellick, a former top U.S. State Department official who has forecast the world economy will shrink by 1-2 percent this year, said that 2009 “is shaping up to be a very dangerous year” and added that difficulties could extend “well into 2010.”

Those fears were underscored by figures out Friday showing that the U.S. trade deficit plunged in January to the lowest level in six years as a deepening recession cut demand for imported goods _ including those from China _ at an even faster rate than for exports.

The Commerce Department said the trade imbalance dropped to $36 billion in January, a decline of 9.7 percent from December and the lowest level since October 2002.

The World Bank has forecast trade to fall to its lowest point in 80 years this year.

Zoellick said he was afraid that fiscal stimulus without reform to clean up the troubled assets weighing down banks balance sheets and recapitalise the banks would lead to a delayed headache after the immediate crisis.

“Turnaround can’t happen unless you clean up the bad assets and recapitalise the banks,” he said. “If you don’t take on the banking issue, the stimulus is just like a sugar high. It pushes some energy through the system, but then you get the let down unless you reopen the credit markets.”

While Britain has begun a program to insure so-called toxic assets from banks, the United States has yet to implement its own such plan.

Meanwhile, many countries in the euro-zone are balking at the possibility of shoring up more debt, with Germany one of the most outspoken critics of the U.S. spending plan.

“The issue is not spending even more but to put in place a regulatory system to prevent the economic catastrophe that the world is experiencing from being repeated,” German Chancellor Angela Merkel said this week at a joint press conference with French President Nicholas Sarkozy.

One thing both U.S. and European officials do agree on is the need to increase funding to the International Monetary Fund so it can help countries in trouble. The 16 nations that use the euro agreed this week to urge governments to double the IMF’s resources to $500 billion and give it a key role overseeing risks to the global economy.

Zoellick said that should be taken a step further, and the IMF given a role in monitoring stimulus packages to see how they take effect.

“What i would suggest is if there’s a difference in view on stimulus between Europe and the United States right now, that they keep monitoring it and be prepared to take additional steps and not withdraw stimulus in 2010,” he told reporters.

____

AP Business Writers Aoife White and Greg Keller in Horsham, England, contributed to this report.

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