U.S., allies warn of economic dangers from oil prices but predict no recession

September 23, 1990|By Stephen E. Nordlinger | Stephen E. Nordlinger,Washington Bureau of The Sun

WASHINGTON -- Finance ministers and central bankers from the United States and its six chief industrial allies said yesterday that the steep increase in oil prices stemming from the Persian Gulf crisis poses "a risk of inflation and a risk of lower economic growth."

But the Group of Seven nations said in a statement after a daylong meeting that they doubted the industrial nations would fall into a recession this year or in 1991.

In a rebuff to the Bush administration, the finance leaders opposed reducing interest rates to soften the impact of the higher oil prices.

The administration has been appealing for a lower rate to maintain economic growth, but the finance ministers and central bankers said that maintaining a "stability-oriented" monetary policy would check an upward thrust in inflationary pressures caused by the oil-price shock.

The statement, issued by officials from the United States, Japan, West Germany, Britain, Italy, France and Canada, echoed the views of Federal Reserve Chairman Alan Greenspan, who testified to Congress last week that although the U.S. economy was weakening, it would be unwise to reduce interest rates because of the inflationary threat from the climbing oil prices.

Canadian Finance Minister Michael Wilson said after the meeting that controlling inflation was considered a top priority to avoid future economic trouble.

"If we don't get on top of inflationary pressures now, the difficulties will be far more severe in the future," he told reporters.

But Treasury Secretary Nicholas F. Brady played down a split on interest rates with the other countries.

"There was no intention to say one risk was greater than the other," Mr. Brady told reporters, referring to the risks of inflation and slower growth highlighted by the financial leaders.

The West German and Japanese officials, whose economies are growing more rapidly than the U.S. economy, were particularly emphatic in talking to reporters of the inflationary threat from the climb in oil prices.

"Countries already have high interest rates, and I think that's the way to go," said Karl Otto Poehl, president of the West German central bank.

The finance ministers, after more than a year of keeping silent on the controversy over the U.S. budget deficit, also singled out the United States for special pressure in lowering its deficit, which they said adds to global inflationary pressures.

The statement, aimed at giving impetus to the stalled budget negotiations, said the financial leaders encouraged the United States to bring the budget talks to a "prompt and successful conclusion."

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