Aug. 19 (Bloomberg) -- The world economy is slowing into a sustainable expansion, not falling back into recession, said U.S. Treasury Undersecretary for International Affairs John Taylor.

``The message about the global economy is basically good,'' Taylor said in an interview. ``You've got growth in Asia. You've got growth in Latin America. And I think if there's any slowdown right now, it's a sign of that growth being sustainable.''

The U.S. and Japanese economies, the world's two biggest, grew at a slower pace than expected in the second quarter, sparking concern that record high oil prices derail global growth.

The U.S. expanded at a 3 percent annual rate in the April- June period, the slowest growth in over a year. Japan's gross domestic product grew at a 1.7 percent annual rate, less than half the median forecast of economists in a Bloomberg survey.

Crude oil futures jumped above $48 a barrel today on concern that Iraqi exports will be further curtailed because of clashes between U.S. troops and fighters loyal to Shiite Muslim cleric Moqtada al-Sadr. They were up 53 cents, or 1.1 percent, at $47.80 a barrel as of 11:17 a.m. on the New York Mercantile Exchange.

``It would be better if oil price were lower for the global expansion, but what I'm emphasizing is that the global expansion has a lot of sustainability,'' Taylor told reporters at a press briefing at the Foreign Press Center in New York. ``It has the momentum, even with higher oil prices, as we are seeing now.''

Germany, Japan

``Economists talk about a gradual slowdown that could happen because of higher oil prices,'' Taylor said in the interview. ``Even with these prices, we see the U.S. economy's expansion continuing and job creation building up -- but we need to work on supply and creating more sources of energy.''

Outside of the U.S., the world economy continues to expand in spite of higher oil prices, Taylor said.

``Just about every economy is growing and not at an excessive rate,'' he said. ``If you're seeing a slowdown globally, it's probably exactly what you'd expect to see in a long expansion, which is never exactly the same each year.''

He said Germany, with the world's third-largest economy, is the only major country that's not growing at a ``strong and steady'' pace. Taylor said that Japan, the second-biggest economy, isn't in trouble.

``Growth in Japan was very strong in the first quarter, and it's now continuing,'' Taylor said. The ``easing of the expansion is the way to build a longer expansion, and for the first time in a dozen years, you've got a sustained expansion in Japan.''

Monetary Policies

Taylor says he sees no global financial crises that will slow the world economy the way crises in Asian currency markets and a Russian debt default did in the late 1990s.

``The spread between interest rates that emerging market countries have to pay and U.S. Treasuries is remarkably low,'' he said. ``There's no major financial market crisis right now.''

Monetary policy ``still has a stimulus force for the U.S. economy, for Japan and for Europe,'' because inflation is so low, Taylor said at the briefing.

Taylor said the economic policies pursued by Venezuelan President Hugo Chavez aren't ``optimal.'' Chavez won a referendum on his rule Sunday, allowing him to stay in power after two years of middle-class protests against his populist economic policies. Chavez has promised to use surging oil revenue to help the poor in the world's fifth-largest oil exporting country.

Venezuela, Argentina, Iraq

Consumer prices have surged 22 percent in the past year. Taylor said Venezuela should follow the example of Brazil, Chile and Mexico. Brazilian and Mexican central bankers have pushed inflation down in recent years. Both Chile and Mexico have signed free trade agreements with the U.S.

Taylor also said the U.S. will not intervene in negotiations between Argentina and its creditors to reschedule $100 billion in defaulted bonds. The IMF on Aug. 4 delayed a $728 million loan payment to the South American country, which defaulted on its debts in 2001, to assess the progress of the talks.

``The U.S. has made a point of not getting in the middle of the negotiations,'' he said. ``This is something for Argentina to work out.'' Still, ``it's important for the U.S. to point out the advantages of a settlement for the Argentine economy.''

On Iraq, Taylor said he is hopeful an IMF program for the country can be completed next month. U.S. and Iraqi officials have urged the IMF and World Bank to speed aid to the nation harmed by Saddam Hussein's rule and the violence related to the U.S.-led invasion that ousted him.

``Iraq is moving ahead with their IMF program,'' Taylor said. ``Negotiations are under way, and I am hopeful that that program can be completed within the month of September.''

As much as $4.25 billion in assistance may be provided over the next three years by the IMF, with $850 million released in the first 12 months, Lorenzo Perez, the head of the IMF's Iraq team, said in January.