G-7 policy must include emerging economies

The Daily Yomiuri, Asia News Network, Tokyo

The meeting of finance ministers and central bank governors from the Group of Seven major industrialized nations faced a historic turning point, two decades after the body reached the Plaza Accord to weaken the dollar.

The G-7 said at the beginning of its communique issued Saturday that the group had "held an informal meeting with key global economies."

Those key global economies were powerful developing countries such as Brazil, India and China, the latter which attended the previous G-7 meeting in October.

It has been pointed out that with the emergence of China and other economies in the 1990s, policy coordination among only Japan, Britain, Canada, France, Germany, Italy and the United States has limited effectiveness in achieving sustainable global economic growth.

The G-7 has been inviting and exchanging opinions with finance ministers from Algeria, China, Iraq, Russia and the United Arab Emirates since autumn 2003, depending on each meeting's agenda, in an attempt to include them in the group's policy coordination effort.

However, this was the first time the powerful emerging countries were invited to a meeting of the G-7 as a group, reflecting their strong influence on the global economy.

The G-7 explained in the communique that it invited them "to respond positively to the challenges and opportunities of the global economy" with recognition of "the need for greater and wider partnerships."

The rapid emergence of the major developing countries has dramatically changed the global economy. In the middle of such a change, policy coordination only among advanced countries is no longer viable. Their invitation to the London meeting is an admission by the G-7 of the need for drastic reform to ensure their inclusion.

The limited reach of the advanced nations' club is reflected in its communique. In the backdrop of a steady global economic recovery, the G-7 showed its willingness to overcome the current risks facing the world economy, but fell far short of practical policy measures.

To sustain global economic growth, the G-7 said in the communique that "key priorities are that the United States has committed to fiscal consolidation; Europe and Japan to further structural reform."

But the group failed to include policy measures to achieve these goals.

Instead, the G-7 simply reaffirmed that "exchange rates should reflect economic fundamentals" and stressed "excessive volatility and disorderly movements in exchange rates are undesirable for economic growth." It added the group would "continue to monitor exchange markets closely and cooperate as appropriate."

This part of the communique just repeated the same language used as in last year's G-7 meeting, which was a compromise of different opinions among Japan, the United States and European countries.

The group also did not mention any short-term practical measures to deal with soaring oil prices, instead presenting long-term goals such as improving the transparency of the crude oil market.

China's gross national product now exceeds that of Canada, a G-7 member, and it will soon surpass Italy's. Brazil and India also are rapidly catching up.

Consumption of raw materials and fuels, including crude oil, in those countries has increased sharply, having a major effect on the global economy.

It is no longer possible to devise effective economic measures without the involvement of such emerging economies.