WASHINGTON - Global finance chiefs launched a new bid Friday to bridge gaps on economic and currency policy at talks clouded by a growing scandal threatening the tenure of World Bank President Paul Wolfowitz.
Group of Seven finance ministers and central bankers from Britain, Canada, France, Germany, Italy, Japan and the United States went behind closed doors divided over currency questions and moves to regulate the booming hedge-fund industry.
In the face of European unease over a weakening yen, Japanese Finance Minister Koji Omi said before conferring with US Treasury Secretary Henry Paulson: "I wouldn't be surprised if there were some open discussion of the yen, as usual."
The G7 convened at the Treasury building in downtown Washington ahead of weekend meetings of policymakers from the International Monetary Fund and the World Bank.
The three-day parley comes as attention in financial and development circles is riveted on the fate of Wolfowitz, currently facing calls that he resign because of his role in a pay scandal at the bank.
The 63-year-old World Bank chief stands accused of helping arrange a massive pay hike for his Libyan-born girlfriend, former World Bank communications specialist Shaha Riza, when she was transferred to the US State Department in 2005.
Wolfowitz on Thursday admitted to errors in the procedure under which the pay package was approved and on Friday received the backing of President George W. Bush, for whom as a deputy secretary of defense he helped plan the Iraq war.
But he still faced an open revolt from outraged World Bank staff members pressing for his departure after a stormy two-year tenure.
The World Bank's 24-member board of executive directors early Friday pinned responsibility for the pay hikes and rapid promotions given to Riza directly on Wolfowitz, leaving him more isolated than ever and his fate uncertain.
Heading into the weekend talks, IMF Managing Director Rodrigo Rato said the world economy was poised to extend "one of the longest sustained periods of growth in the modern era."
Despite a slowdown in the United States, a slight deceleration in Europe, and a sharp global stockmarket correction in February, G7 ministers can take heart from a generally rosy outlook for global growth as Japan perks up and China leads the charge for developing economies.
But within the group there remain unresolved differences on currency volatility and proposed measures to regulate the trillion-dollar hedge fund industry.
A weakening Japanese yen is causing consternation in European capitals, where officials fear the trend could penalize eurozone exports, making them more expensive and less competitive, and thereby jeopardize a nascent recovery in the 13-nation zone.
But European disquiet is not shared by the United States, which argues that the undervalued Chinese yuan is the principal threat, giving Chinese goods an unfair advantage on US markets and costing US jobs.
At their last meeting in Germany in February the G7 in a final statement spared any criticism of Japanese monetary policy and instead called explicitly on China to allow the yuan to appreciate.
This time around, analysts are predicting the G7 will again opt for a soft tone in its final statement, steering clear of any hard-hitting language targeting Japan while renewing pressure on China.
"The chances of strong remarks on a weak yen are very slim this time," said Tokyo-based Commerzbank analyst Ryohei Muramatsu.
"And since foreign exchange rates are stable in an orderly manner right now, there is no need for the G7 to say anything that may possibly disturb the market," he said.
China is not attending the G7 session, as its ministers have done as guests on several occasions in the past. Their absence follows increased trade friction between Beijing and Washington and in particular a US decision this week to lodge a copyright piracy complaint against China at the World Trade Organization.
Another hot button issue dividing the G7 is the unregulated hedge fund industry, where lucrative but high-risk investments are drawing serious cash from big banks and public pension funds.
Industry representatives were scheduled to hold talks with G7 deputy ministers on Sunday.
A German initiative to tighten control over hedge funds is being resisted in the United States and Britain, home to most such instruments.
US Federal Reserve chairman Ben Bernanke earlier this week reaffirmed his own opposition to government regulation, preferring to leave that job to markets.
The IMF as well has rejected tougher hedge fund oversight.

04/13/2007 20:14 GMT