G-8 officials turn to IMF over stimulus withdrawal

[June 13, 2009]  LECCE, Italy (AP) -- Financial officials from the Group of Eight industrialized nations are expected to agree Saturday to ask the International Monetary Fund to investigate ways to unwind hefty stimulus packages amid early signs of a global economic recovery.

Finance ministers are divided on the importance of so-called exit strategies, with the United States, Britain and France urging members to stay committed to expansive monetary and fiscal packages while several European countries and Canada want unwinding those positions to be a priority of the talks here.

A source close to the discussions, who was not authorised to speak while talks continued, said that ministers would compromise by asking the IMF to conduct a study on how the economic and financial stimulus policies should be rolled back.

French Finance Minister Christine Lagarde told reporters Friday that it was premature to move ahead on exit strategies when nations were still in the process of ensuring that the stimulus packages were working. Others were more supportive of the plans.

"I will support the request to the IMF to work out options for exit-strategies," German Finance Minister Peer Steinbrueck told a briefing as ministers headed into meetings on Saturday.

The U.S., Japan, Germany, France, Britain, Italy, Canada, Russia and the European Union are trying to set the agenda for a meeting of G-8 national leaders in July in earthquake-stricken L'Aquila in central Italy.

"We think it will be completed in a positive way, working together for a common solution," Italian Finance Minister Guilio Tremonti told reporters.

There is more optimism than when ministers last met as part of the wider Group of 20 in England in April and even a tentative agreement on exit strategies in the communique from the meeting here would reflect that more positive tone.

Germany in particular has been a strong critic of the lower interest rates, tax cuts and measures to boost the money supply that have been employed by countries including Britain and the United States, warning they are potentially inflationary and deficit-building.

"I think it's appropriate that we do look a little bit down the road and plan to get the private sector back into the markets and the public sector withdrawing from the markets," Canadian Finance Minister Jim Flaherty told reporters before a working dinner Friday night.

Financial markets have rallied strongly over the last three months largely on better-than-expected economic data, as well as hopes that the financial sector is stabilizing. Ten of the largest U.S. banks were ruled strong enough to repay $68 billion in government bailout money. And other data out on Thursday showed a rise in U.S. retail sales and lower U.S. unemployment claims, as well as rising global demand for energy.

But there are worries in the U.S. and Britain that continental Europe has not done enough to deal with the recession. And the World Bank forecast on Thursday the global economy will contract 3.0 percent this year, far worse than a previous estimate of minus 1.75 percent.

U.S. Treasury Secretary Timothy Geithner said this week that he would explain the rigorous public stress tests conducted on 19 of America's biggest banks to his counterparts.

Britain has conducted the tests, but released less detail on the results than the United States, while Germany has argued they could undermine the fledgling economic confidence.

To pursue his agenda, Geithner had bilateral meetings Friday with his Russian and Japanese counterparts Alexei Kudrin and Kaoru Yosano as well as Italy's central bank chief Mario Draghi, in his function as chairman of a Group of 20 committee set up to give early warning of risks to the global economy, with whom he discussed the stress tests. Draghi said the meeting went well.

Geithner also met earlier Saturday with British Treasury chief Alistair Darling.

[Associated Press; By COLLEEN BARRY and JANE WARDELL]

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