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WORLD ECONOMIC FORUM Dollar to be summit topic



Published: Tue, January 25, 2005 @ 12:00 a.m.



The U.S. economy and foreign relations are likely to shadow the Davos summit discussions.

KNIGHT RIDDER NEWSPAPERS

SAN FRANCISCO -- The uncertain economic outlook and international uneasiness as President Bush begins his second term will set the tone for global leaders gathering in Davos, Switzerland, Wednesday for the annual meeting of the World Economic Forum.

With the global economy at risk from the weak dollar, the war in Iraq, and Mideast instability and rising oil prices, participants in the exclusive annual meeting in the alpine ski resort will be wrestling with how to keep the world's economic engine running smoothly.

Other dangers such as the specter of ballooning U.S. trade and budget deficits, the chilly relationships between Washington and its allies and the prospect of higher U.S. interest rates are all set to cast a shadow over the meeting.

"Some of the imbalances are a cause for concern among people who would like to see a continuation or even an acceleration of global growth," said Greg Fleming, President of Global Markets & amp; Investment Banking at Merrill Lynch & amp; Co. "It's a period of constrained optimism."

Scheduled to appear

The World Economic Forum's annual meeting, which has been held for the past 34 years, brings together presidents, ministers, religious leaders, rock stars, labor organizers and others for five days of networking, debate and wheeling and dealing.

British Prime Minister Tony Blair will officially open this year's meeting with a speech focusing on climate change.

Over the years the conference has also attracted anti-globalization protesters and its fair share of controversy. To guard against any disruptions this year, there will be 5,500 Swiss troops providing security.

While the Davos meeting may have lost some of its buzz since the 1990s, its organizers have still managed to assemble a guest list brimming with international leaders including Ukraine's recently elected president, Viktor Yushchenko, the heads of France, Germany and South Africa, former U.S. President Bill Clinton, Microsoft's Bill Gates, film star Angelina Jolie and rock star Bono.

Likely topics

Topics up for discussion will range from the proliferation of weapons of mass destruction to the ability of celebrities to effect social change. This year, the talks are all gathered under the overall theme of "Taking Responsibility for Tough Choices."

But in keeping with the forum's roots, the global economic outlook for the next 12 to 18 months will get most of the attention from participants, which include 23 heads of state or government and 72 cabinet ministers.

Issues such as the end of global textile quotas and the subsequent displacement of as many as 30 million jobs in the coming years, progress on the United Nations Millennium Development Goals, globalization, corporate responsibility, slowing profit growth and the state of trade unions will all be debated.

The dollar's weakness and the tension it has caused among U.S. trading partners will be high on the agenda. Several sessions are devoted to exchange rates, but much of the talk will be between meetings and in informal groups where European officials are not likely to be shy about their views.

"You're going to hear a lot about the dollar," said Alan Blinder, a former vice chairman of the Federal Reserve and professor at Princeton University.

The dollar has been falling steadily for two years and has hurt European and some Asian exporters, forcing foreign central banks to buy hundreds of billions of dollars to try to maintain the value of their currencies. It has also helped push up the modest inflation rate in the United States.

Countries whose currencies trade at a fixed rate to the greenback, most notably China, have been able to maintain steady growth. But in China's case, the steady rise in exports and its rapid economic expansion have sparked resentment in the region and prompted the United States to call for Beijing to devalue the yuan.

The weak dollar and the accompanying U.S. budget and trade deficits have also raised worries of a crisis in the global economy, which the International Monetary Fund estimates will grow about 4.3 percent in 2005.

But observers said U.S. officials were likely to try to deflect attention from what many observers have said is Washington's tacit acceptance of a weak dollar, which can help make U.S. goods more competitive abroad.

"If the topic gets on to exchange rates, you can be sure the U.S. will try to deflect it onto the yuan," Blinder said.

But he said U.S. officials would be hard pressed to convince the world that the main trouble is with the Chinese currency.

Global outlook

John Swainson, the incoming chief executive of Computer Associates International (CA), said he would be focusing on how the uncertain economic outlook affects profits.

"All the economists are predicting a better 2005, but it's still a very uncertain recovery," Swainson told MarketWatch. "That has an impact on corporate confidence and that has an impact on companies' willingness to spend, and that has a very direct impact on us."

James Root, a partner at business consultant Bain & amp; Co. who has studied globalization, said global corporations' toughest challenges were growing their businesses in a world where there are few new markets left to conquer and figuring out how to do that while absorbing customers' ever-increasing demands for corporate responsibility.




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