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G7 finance ministers to vow support for Ukraine and seek ways to spur global economy as debt risks loom

U.S. Treasury Secretary Janet Yellen says the G-7 nations “will stand with Ukraine for as long as it takes” to end the conflict.

Janet Yellen
U.S. Treasury Secretary Janet Yellen takes questions at the G7 meeting of Finance Ministers and Central Bank Governors, at Toki Messe in Niigata, Japan, Thursday, May 11, 2023.Associated Press/LaPresse (APN)

Financial leaders of the Group of Seven advanced economies are discussing ways to support Ukraine and pressure Russia to end the war as they meet in Japan starting Thursday.

Ukraine’s finance minister, Serhiy Marchenko, was participating online in the first session of the G-7 talks in Niigata, a port city on the Japan Sea coast.

U.S. Treasury Secretary Janet Yellen said the G-7 nations “will stand with Ukraine for as long as it takes” to end the conflict. The leaders will be mulling ways to prevent Russia and other countries from circumventing sanctions against Moscow for its invasion, Japanese Finance Minister Shunichi Suzuki told reporters.

“We have taken a wave of actions in the past few months to crack down on evasion. And my team has traveled around the world to intensify this work,” Yellen said.

The war and its toll on the global economy, debt crises in developing countries and a stalemate in Washington over the national debt are topping the agenda of the three days of talks by finance ministers and central bank governors of G-7 countries and others invited to attend.

Despite the wide range of topics due for consideration, from climate change to debt relief to digital currencies, the standoff over the U.S. debt ceiling and a potential default loomed as a major potential threat to the global economy.

Speaking before the closed-door meetings began, Yellen said one of her priorities was to emphasize the importance of resolving the crisis.

“A default is frankly unthinkable,” she told reporters. “America should never default. It would rank as a catastrophe.”

Japan’s central bank governor, Kazuo Ueda, echoed that sentiment.

If the United States defaults on its debt, “it will become a big move and a big problem, and I think that the Fed alone, for example, may not be able to counteract it,” said Ueda, who took the helm of the Bank of Japan last month.

He said he trusted the U.S. government would do its best to avoid such a situation.

U.S. President Joe Biden said Wednesday that he and congressional leaders had a “productive” meeting Tuesday on trying to raise the nation’s debt limit. They will meet again Friday to try to avert the risk as soon as June 1 of an unprecedented government default if lawmakers in the divided Congress don’t agree to raise the debt ceiling.

Biden said he was “absolutely certain” that the country could avert a default. Yellen also said she was “very hopeful” the problem can be resolved in time.

Yellen also will be seeking to reassure her counterparts over recent bank failures that have raised worries over risks for the global financial system.

She said Biden’s “historic” investments in modernizing U.S. infrastructure were a step toward improving the resilience of an economy whose reliance on global supply chains was sorely tested during the COVID-19 pandemic.

“We are taking a broad range of individual and joint actions to bring down inflation, sustain growth, and help mitigate the impact of external shocks, including to developing countries,” she said.

But she added that, “even as we face downside risks, I believe that the global economy remains in a better place than many predicted six months ago.”

The Federal Reserve said in a report this week that U.S. banks raised their lending standards for business and consumer loans in the aftermath of three large bank failures that were in part brought on by the central bank’s sharp increases in interest rates to beat down inflation that surged to four-decade highs after the pandemic.

The Fed surveyed 65 U.S. banks and U.S. branches of 19 foreign banks in late March and early April, well after Silicon Valley Bank and Signature Bank collapsed in early March, touching off the latest round of bank turmoil. First Republic Bank failed earlier this month in the second-largest bank failure in U.S. history.

Rate increases are meant to slow lending and borrowing but can overshoot their goal, tipping the economy into recession. Moves by banks to further limit lending could further squeeze businesses and consumers.

Inflation has remained stubbornly high. Consumer prices in the United States rose 0.4% in April, up sharply from a 0.1% rise from February to March, and measures of underlying inflation stayed high, a sign that further declines in inflation are likely to be slow and bumpy even though the annual increase of 4.9% was the smallest in two years.

Other G-7 economies are contending with even higher surging prices, obliging their central banks to raise interest rates that went to record lows in the early days of the pandemic.

G-7 financial leaders met just a month ago, in Washington during the annual meeting of the World Bank and International Monetary Fund. There, they reiterated their commitment to helping economies cope with the impact of the war in Ukraine, to help heavily indebted countries resolve their financial vulnerability, fortify global health systems and help tackle climate change.

The G-7 consists of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. Other invitees to the meetings in Niigata include the European Union, IMF and World Bank, and the finance ministers of Brazil, Comoros, India, Indonesia, South Korea and Singapore.

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