Life for G-7 Leaders No Bowl of Cherries
THE end of the cold war hasn't left the leaders of the major industrial democracies with cushy, ceremonial jobs. Just look at some of the problems they face when the Group of Seven meet 10 days from now in Munich, Germany.
* The economic recovery in the world is not going well.
In the United States, the pace of the expansion is so slow that President Bush, in an interview with the New York Times this week, called on the Federal Reserve to lower interest rates further. Presidents usually are most reluctant to urge openly a policy change on the semi-independent Fed, preferring to leave it to subordinates. But a more vigorous recovery would be helpful to Mr. Bush's reelection prospects.
In Japan, the stock market has tumbled about 28 percent this year to a five-and-a-half-year low. Private forecasters are saying real economic growth in the fiscal year that started in April will be 2 percent or below, a recession by Japanese standards.
In Western Europe, the consensus forecast for real growth this year is only 1.4 percent, and Germany is sticking to its guns in keeping interest rates high in a battle against inflation.
The seven leaders will compare economic notes. Whether they will actually alter policies to stimulate growth is dubious.
* The Uruguay Round of world trade talks remains stalemated over agricultural issues. Recent European Community plans to reduce its farm surpluses by taking land out of production and lowering domestic prices have not satisfied the US. It wants export subsidies cut.
"One would hope that the summit would break the deadlock," says John Williamson, an economist with the Institute for International Economics in Washington. This may depend on the Germans twisting the arms of the French for further concessions. Community leaders were discussing farm issues at their own summit in Lisbon this week. As often happens, French farmers blocked some roads to Paris several days ago, protesting any cut in their financial support.
At present, world trade barriers tend to be rising. Notes the Bank for International Settlements in Basel, Switzerland, a bank for central bankers, in its recent annual report: "Most industrial countries have in recent years strayed further from the free trade ideals they profess to uphold, while many developing countries have taken decisive measures to open their economies."
At the last few economic summits, the leaders called for further progress on the Uruguay Round - with limited impact.
* The G-7 (US, Canada, Britain, Japan, Germany, France, and Italy) must decide on further measures to help Russia and the other republics that belonged to the former Soviet Union.
An International Monetary Fund team plans to renew negotiations Monday in Moscow on a package of monetary, budget, and other reforms aimed at switching the Russian economy to a market-based system. If these talks are successful, IMF managing director Michel Camdessus will recommend that the agency's executive board approve $1 billion in assistance. It is not certain this can be done before the July 6-8 summit.
In a study released yesterday, Mr. Williamson charged that the Group of Seven and the IMF are making critical errors in their dealings with Russia and the other republics. Trade is collapsing among the new republics largely because of a lack of adequate payments mechanisms among them, he holds.
One mistake, he said, has been supporting the maintenance of a ruble zone, in which all the republics continue to use the Russian currency. Since several republics already plan to establish their own national monies, the G-7 and the IMF should support a new mechanism to finance trade among the republics. This could be a ruble area, with the republics having their own separate currencies but using the ruble for international purposes; or it could be a payments union modeled on the European Payments Union that formed the core of the Marshall Plan in postwar Western Europe.
Williamson doubts that Bush and his buddies will deal with that technical issue directly. But perhaps, he says, they might put in place a $6 billion stabilization fund for the ruble before the Russians establish a fixed exchange rate. Otherwise the ruble will be far too undervalued, he argues.
Think-tank experts always hope to actually influence policy.