For U.S., a Victory in Terrorism Fight, a Loss on the Trade Front

WASHINGTON — The United States secured commitments from other wealthy countries Saturday for better cooperation in the crackdown on terrorist finances but found itself under fire on other fronts at a weekend gathering of world finance officials.

As protesters took to the streets to denounce the Bush administration’s international priorities, delegates attending the spring meetings of the International Monetary Fund and the World Bank were taking their own shots at U.S. policy.

Poor countries and World Bank officials objected to a U.S. proposal to replace development loans with grants. Europe and other industrial exporters fumed about newly imposed U.S. steel tariffs and discussed possible retaliatory moves. IMF officials warned that the growing U.S. trade deficit could imperil global prosperity.

Some of the criticism reflected long-standing grievances, and some was directed at affluent nations as a group. But some participants said they think the United States has forfeited the moral high ground on certain issues, particularly trade, and may have to work harder to get its way in global policymaking.

“There’s quite a lot of sniping going on back and forth,” said one official, who requested anonymity. “Certainly the Europeans have felt more empowered, and the World Bank has fought the [Bush] administration’s grant proposal tooth and nail.”

The grant debate is unusual because poor countries and many of their advocates are opposing a proposal that would reduce their future debt burdens. The Bush administration wants to replace up to 50% of development lending with grants, arguing that projects to improve health and education in poor countries typically do not generate the cash flow needed to repay loans.

But the U.S. position, championed this weekend by Treasury Secretary Paul H. O’Neill, has encountered stiff opposition from the World Bank staff, the European Community and the Group of 24, a coalition of developing countries.

British Official Calls U.S. Proposal ‘Crazy’

Opponents said they fear that the U.S. plan, while well intentioned, would undermine development funding because the World Bank depends on cash flow from debt payments to replenish its accounts. The World Bank has estimated the plan could reduce its development resources by as much as $100 billion over the next 40 years. British development secretary Claire Short called the Bush administration proposal “crazy.”

The Bush administration hasn’t won many converts to its grant plan.

The Group of Seven industrial countries--the United States, Canada, Britain, France, Germany, Italy and Japan--wrapped up two days of talks Saturday without resolving the standoff.

The administration had better luck on the issue of terrorist funding. The G-7 agreed to cooperate more effectively to cut off sources of financing for terrorist organizations. For the first time, the G-7 will issue joint designations of terrorist entities and act in concert to freeze their assets. U.S. officials have complained that America has been more aggressive than some of its allies in taking action against terrorist financiers.

The G-7 also endorsed an administration proposal to help bankrupt countries, such as Argentina, reach agreement with their creditors on debt restructuring. Under the U.S. plan, developing country debt contracts would contain a “contingency clause” that would enable a majority of creditors to agree on a restructuring program even if a few creditors remained opposed.

Although the G-7 ministers hailed increasing signs that a global recovery is in progress, they said Argentina’s economic collapse remained a “serious concern.”

According to IMF analysts, the growing U.S. trade deficit poses another long-term risk to global security. IMF Chief Economist Kenneth Rogoff said America’s current account deficit, the broadest measure of trade and investment flows between nations, is nearing a level that in other countries has led to currency collapses. U.S. officials countered that the trade gap actually reflects the attractiveness of the United States as a place for foreigners to invest their funds.

Lower Trade Barriers Pushed

Criticism of U.S. policy has been particularly pointed on trade. Developing countries and their advocates pressed harder than ever to get the United States, Europe and Japan to lower trade barriers that shut out poor countries’ key exports: textiles, apparel and agricultural products.

The administration came also under attack by Europe, Japan and other steel-producing countries for imposing tariffs of up to 30% on steel imports to give the beleaguered U.S. industry more time to restructure. The steel tariffs are not on the agenda of this weekend’s meetings, but they are frequently cited as examples of U.S. hypocrisy on trade policy.

On that issue, at least, the view inside the IMF headquarters was not that different from the critique offered by the protesters on the other side of the police cordons.

“The U.S. economy was very protectionist in the 19th century,” said Patrick Keaney, an anti-globalization activist from Boston. “We became the strongest economy on Earth. Now we’re asking these other countries to compete with us without any of the protections we insisted on for ourselves.”