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;AP; ANPAf..r.. C-PESEK-COLUMN Goodbye Obsolete G-7, Meet the Relevant G-20: William Pesek Jr. JP/16/Power

Goodbye Obsolete G-7, Meet the Relevant G-20: William Pesek Jr.

William Pesek Jr. Bloomberg Australia

Australia, with 20 million people and a $618 billion economy, is rarely thought of as a global power.

Yet the leaders of a country whose economy ranks 13th in size may just shake up the world order as we know it by reducing the influence of the Group of Seven nations. It would be replaced with a more inclusive regime for managing global economic affairs. Should it happen, so much the better.

"As the world economy has changed, so too, these institutions must change," Australian Treasurer Peter Costello said last month in China.

The G-7 is, let's face it, becoming irrelevant. Those seeking evidence of this impotence need look no further than this year's surge in energy prices. The mightiest economies could do little more than issue useless press releases and communiques. Why? Demand from economies beyond the G-7's purview now plays a major role in determining global prices.

In February, signaling that some humility is in order, the G-7 invited a number of emerging economies to attend one of their periodic meetings. They included Brazil, Russia, India and China.

Australia would like to see more of the same, and it's uniquely positioned to push the issue. One reason: it's a member of the Group of 20 nations, and next year it will chair the group's annual meeting. Another: because Australia is itself a developed economy, it may have more clout with rich nations to argue for a more equitable global arrangement. In other words, the G-20.

It's not just a matter of fairness. The G-7 includes Canada, France, Germany, Italy, Japan, the U.K. and the U.S. The G-20 consists of those countries plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the European Union.

The G-20 covers about two-thirds of the world's population and more than 80 percent of global output. Not only does it include the world's most populous and fastest-growing nations, but also some of its most important oil producers and voracious consumers of commodities.

Granted, getting seven economies to agree on anything is a chore in the best of times, never mind 20. If economic leaders are to have any leverage in this globalized world of ours, they're going to have to open their clubby little world.

Since those holding power are always reluctant to give it up, it's more likely the G-7 would prefer to add a couple of members than let the G-20 take over. That would be a mistake. It would mean cherry picking economies it likes, rather than honestly respecting the emerging new global order.

The G-7 would be wise to admit the system of financial leadership that made sense 15 years ago or even three years ago doesn't today and pass the baton to the G-20.

How does the G-7 matter when China, one of the most influential and risky economies of our day, is outside the group? How can the G-7 influence events in Latin America, a region without a voice in the group?

The G-20, let's remember, was created in 1999 in the wake of financial crises is Asia and Russia. It wouldn't have been necessary if the G-7 or the International Monetary Fund (IMF) were up to the job. The G-20's eclectic mix of advanced and developing nations spanning all geographic regions and trade blocks may make the global financial system more manageable.

Efforts here in Australia may accelerate the overdue shift in leadership everyone except officials in Berlin, London, Ottawa, Paris, Rome, Tokyo and Washington seem to know is inevitable. It's being done rather diplomatically, yet the effort is clearly afoot.

A steady theme cropping up in Costello's speeches is that economies like those in the G-20 should play "an even more influential role" in global affairs in the years ahead. And here, Australia may have some sway with G-7 members.

Just as in areas such as sports, Australia punches above its weight in economic terms. As of March, the Australian dollar was the seventh-most traded currency in the world, according to the Bank for International Settlements. Not bad for a nation that's not even among the 12-largest economies and ranks 31st in the world in population.

Australia's markets are among the most developed and liquid anywhere. The government boasts a budget surplus at a time when six members of the G-7 are sitting on huge deficits. Its economy also has been an oasis of stability, expanding for 14 straight years.

All this gives Australia a level of credibility many G-20 members can't muster. And you can bet officials here will raise the issue of greater inclusion early and often as they host G-20- related events in 2006 -- just as Costello did at last month's G- 20 meeting in China.

It's time the G-7 admitted the world has grown too large and complex for it to wield much power. With prodding from Australia and other nations, it's only a matter of time before it may be forced to do just that.