The United States tried to instill confidence on Thursday that the global recovery was not at risk as finance leaders from around the world gathered to advance a plan aimed at preventing future economic crises.
As finance ministers and central bankers from the world's top economies who are aiming to find ways to shrink imbalances in order to foster sustainable growth wrapped up initial meetings on Thursday, the latest news underscored the problems faced.
Export-rich China, the world's No. 2 economy, reported another quarter of turbo-charged growth, while the United States reported a pick-up in claims for jobless benefits, raising questions about recovery in the world's biggest economy.
Leaders from the Group of Seven developed nations met on Thursday ahead of a larger Group of 20 rich and emerging country meeting to last all day on Friday. Officials will weigh the impact of high oil prices, huge government debts and Japan's recent disasters.
Despite the risks in oil, the financial challenges still facing parts of Europe, despite what's happened in Japan ... what you see is gradual healing, gradual strengthening in confidence that the world economy is going to be growing at a reasonable rate, Treasury Secretary Timothy Geithner said at conference on the global economy.
To prolong the recovery, G20 officials were expected to flesh out a plan to build a world economy less prone to the booms and busts that have marked the past two decades.
That would involve shrinking imbalances between export-rich countries such as China and debt-burdened ones such as the United States.
Canadian Finance Minister Jim Flaherty said addressing these imbalances, which have long plagued the global economy was a top priority, though he conceded there are still some bumps along the road.
Many economists say imbalances contributed to the 2007-2009 financial crisis, as emerging market countries reinvested large surpluses into Western markets and caused excessive risk taking by banks.
The United States in particular has long held that China undervalues its currency to support exports, which swells its trade surplus.
But in an interview with Reuters, Brazilian Finance Minister Guido Mantega blamed advanced countries for the imbalances and urged the U.S. Federal Reserve and other central banks to end their loose monetary policies. That would push China's yuan higher and reduce its surplus.
The primary responsibility for the excess liquidity lies with the advanced nations, not the emerging ones, he said.
At a separate meeting in China on Thursday, the BRICS group of emerging markets -- Brazil, Russia, India and China -- along with South Africa called for a revamped global monetary system that relies less on the dollar and a louder voice in global financial institutions.
The G20, which accounts for about 85 percent of the global economy, hopes to complete work this week on guidelines to assess whether specific countries were saving or spending too much, although naming who was running afoul would come later.
French Finance Minister Christine Lagarde suggested the biggest G20 economies -- those representing 5 percent or more of the group's output -- might face scrutiny. That would likely include the United States, Japan, Germany, China and France.
It is a matter of credibility for the G20 that we agree on the indicative guidelines this weekend, said Olli Rehn, the European Union's economic and monetary affairs commissioner.
Other issues are likely to crowd the G20 agenda as well. As officials gathered, Greek borrowing costs hit new highs. Investors were spooked as Germany suggested a debt restructuring may be unavoidable.
Athens is struggling to cut spending enough to meet commitments made in return for a 110 billion euro ($160 billion) bailout from the European Union and International Monetary Fund.
Other officials said talk of a possible restructuring was misplaced.
There is no discussion of debt restructuring as far as Greece is concerned. None whatsoever, Lagarde said.
The G7 countries -- the United States, Britain, Canada, France, Germany, Italy and Japan -- also met behind closed doors Thursday evening to assess the economic damage from Japan's earthquake and uprisings in the Arab world.
The IMF, which holds its twice-yearly meetings this weekend, warned officials not to grow complacent about the recovery's prospects simply because the worst of the financial crisis has passed.
The apex of the crisis is behind us, but it would be part of the complacency I am trying to avoid to believe we are in a post-crisis era, IMF chief Dominique Strauss-Kahn said.
SOUNDER FOUNDATION FOR GROWTH
China has expressed suspicion that the effort on imbalances may be aimed at pressuring it to bring down its hefty trade surpluses.
China's foreign exchange reserves -- a stockpile that reflects Beijing's exporting prowess -- soared to a record of more than $3 trillion by the end of March, a sum certain to raise eyebrows in Washington.
But Chinese President Hu Jintao, who spoke in China as meetings in Washington wound up Thursday night, said his country's growth was still unbalanced and pledged to boost the role of consumption in the economy.
China has so far resisted Western efforts to get it to let the yuan rise more quickly, though rising price pressures at home may encourage it to embrace more flexibility.
The People's Bank of China on Thursday set the yuan's mid-point against the dollar at its highest level since it was last revalued in 2005. The currency is up more than 4 percent against the dollar since mid-2010.
Lagarde also said officials hoped for progress toward reforming the world monetary system, a top priority for France, which chairs the G20 this year.
The G20 has been working on a plan to include the Chinese yuan in the basket of currencies that makes up the IMF Special Drawing Right, a unit of account between IMF member nations.
Progress, however, has been slow, in part because of China's policy of keeping the yuan on a tight leash. SDR currencies are supposed to be freely usable.
So, we are ... not yet there, but there is a willingness on all sides and an open-mindedness, Germany's deputy finance minister, Joerg Asmussen, told Reuters.
(Reporting by Reuters IMF/G20 team; Editing by Tim Ahmann and Leslie Adler)