Oil exporters can help trade balance-Treasury paper

WASHINGTON, Mar 4 (Reuters) Soaring world oil prices have had a significant impact on rising global imbalances in international trade, and oil exporters now need to play a role in unwinding those gaps, a U.S. Treasury paper said on Friday.

Highlighting the scale to which a trebling of world crude prices since early 2002 has boosted the current account surpluses of the big oil-exporting nations and exaggerated U.S. deficits, the paper said there were many areas for oil-rich countries to aid world rebalancing.

''To the extent that oil exporters' revenues accumulate, global imbalances will be higher than otherwise and oil exporters will need to be part of the adjustment process, just as emerging Asia, the United States, Japan and Europe need to play a role,'' the paper said.

If oil price rises are sustained, it said these countries should be expected to boost imports -- through higher government spending on long-term social investments if necessary -- and also consider more flexible exchange rate regimes to help boost local spending power on imported goods.

The Group of Seven leading economic powers -- the United States, Japan, Germany, Britain, France, Italy and Canada -- regularly call for a three-pronged approach to correcting world trade imbalances, illustrated most clearly by a rising U.S. current account deficit well in excess of 6 per cent of GDP.

These include cutting the U.S. budget deficit, making the exchange rates of China and other emerging Asian economies more flexible and lifting import demand in Europe and Japan.

Policy prescriptions for the world's main oil-exporting nations, apart from those related to their influence over the oil price itself, have largely been absent to date.

But Friday's paper, billed as the first of an occasional series from the Treasury's International Affairs division, showed that since 2002 the U.S. oil import bill has risen by 8 billion -- more than half the deterioration in its overall current account deficit over that period.

It contrasted this with a rise in Saudi Arabia's current account surplus to some 30 per cent of national output from 6 per cent over the same timeframe.

In dollar terms, it showed the rise in the total current account surpluses of Middle Eastern countries rose by an estimated 8 billion from 2002 to 2005.

FOUR WAYS TO ADJUST Although data indicated that oil price windfalls to a group of the biggest oil exporters had evenly found its way into both foreign exchange reserves and imports, it said there were four main ways in which growing surpluses could be pared back in an environment of sustained oil price rises.

The Treasury report said some lower income oil exporters can be expected to absorb all or most of their higher oil revenues through increased expenditure on imports, Secondly, it said it was reasonable to expect countries such as Russia, Norway and Oman to prudently accumulate current revenues and -- by using national investment funds fueled by oil revenues -- spread future expenditures evenly over time.

Thirdly, it said it was sensible for big oil producers with limited capacity to boost imports now to increase saving and improve debt positions.

But, if high oil prices are sustained, it said government should ideally increase spending on investments ''with high social rates of return'' and which boost living standards and strengthen their economies in the longer term.

Finally, it said: ''If oil prices remain elevated, large oil exporters should consider the role that the choice of foreign exchange regime can play in the adjustment process.'' REUTERS SD BS 1708