WASHINGTON (Reuters) - U.S. Treasury Secretary Timothy Geithner will tell fellow finance chiefs from rich countries on Friday that they can no longer rely on a free-spending U.S. consumer to fuel global expansion.
Geithner will outline “bold” efforts to stabilize the U.S. financial system, said a senior Treasury Department official on Thursday, warning the global economy is in a severe recession and a concerted effort is needed to promote a recovery.
“He (Geithner) will also speak about the need for a more balanced recovery and expansion where each nation is more focused on growth that is sustainable and not dependent on the U.S. consumer,” the official told a press briefing.
Finance ministers and central bankers from the G7, which groups the United States, Britain, Canada, France, Germany, Italy and Japan, meet on Friday afternoon before an evening gathering of the larger Group of 20 that includes key emerging market countries like China, India, Brazil and South Korea.
The U.S. official said Friday’s sessions, which take place ahead of semi-annual meetings of the International Monetary Fund and World Bank, carry forward commitments made at an April 2 meeting of G20 political leaders in London.
Participants agreed in London to add to resources for the IMF and for promoting global trade.
“This is a meeting basically to follow up and to have good discussions about the global economy and financial conditions,” the U.S. official said.
Despite some signs that a global economic freefall might be slowing, there is still plenty for the finance chiefs to worry about, including how to get toxic assets off banks’ balance sheets. Geithner will brief the G7 on U.S. stress-testing of U.S. banks, to assess their ability to operate if the economy worsens, but it was unclear how detailed his comments will be.
U.S. and global markets are nervously awaiting the outcome of stress tests on 19 of the largest banks, including Citigroup, J.P. Morgan Chase & Co and Wells Fargo. The results are to be announced on May 4.
Ahead of the G7 meeting, the IMF forecast this week that the global economy will shrink 1.3 percent this year and then begin slowly recovering next year.
“We are facing a severe downturn and financial stress, global recession, capital being withdrawn from emerging markets and trade is contracting,” the U.S. official said.
“There have been some data suggesting that the pace of decline in our countries has been slowing and there are some tentative signs of improvement but there are still persisting downside risks, for example due to ongoing global deleveraging, continued pressures in financial systems,” the official added.
The London G20 endorsed a tripling of IMF resources, with up to $500 billion of new funds for the global lender. The U.S. official said well over $300 billion is already pledged and said he expected this weekend’s meetings will move the issue forward so that the IMF can lend to emerging economies hurt by shrinking trade in a global downturn.
“I certainly do hope and expect we’ll be making progress this weekend on moving the ball forward,” the official said, adding the United States also will push for giving emerging markets a greater voting share in international financial institutions like the IMF.
“We will reaffirm our strong commitment to governance change at the IMF and other IFIs,” the official said.
Editing by James Dalgleish