Financial Post G7 Record

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[Financial Post G7 Record]

Financial Post, Weekly edition, Mon 15 Jul 91, page 6. Editorial.


Priorities for Group of Seven

Just two years ago, Soviet President Mikhail Gorbachev created quite a stir at the meeting of the seven leading industrialized nations with a letter proposing greater integration of the Soviet and Group of Seven economies. When the G-7 meets next week in London, Gorbachev will be there in person, with details of his latest plan to reform a crumbling Soviet economy and an appeal for G-7 financial help.

The world will benefit enormously if the Soviet Union becomes an efficient and integral part of the global trading community. But the G-7 leaders should ask for more concrete evidence of Soviet acceptance of the tenets of a market economy before opening their wallets.

For example, what about ensuring the right to private property and accepting the principles of contract law? The private sector is understandably reluctant to invest in places without such safeguards and taxpayers have the right to demand their governments exercise the same caution.

There should also be firm evidence of cuts in Soviet defence spending. How can the G-7 have confidence in the Soviet Union's ability to release capital for transportation, housing, and research and development if it continues to spend so much on arms? A reduction in defence spending by the Soviets would also make it easier for the G-7 to provide aid. The more the Soviets cut back on arms, the less need for the G-7 to spend on defence; some of those savings could be earmarked for aid to the Soviets.

Technical and financial advice could be offered to the Soviets now. But the provision of hard cash should be tied into clear progress on economic reform. A system of rewards will provide the incentive to press ahead with change.

Although aid to the Soviets is a pressing question, summit leaders shouldn't let it distract them from the meat and potatoes issues facing the global economy.

First, the summiteers must not weaken in their resolve against inflation. A global recession has intensified the cry for easier money to quicken the pace of recovery. There is some scope for easing of credit, but nothing would more jeopardize medium-term growth prospects than allowing inflation rates to take off again.

Second, bringing the Uruguay Round of talks under the General Agreement on Tariffs and Trade to successful completion is, as the OECD ministers declared in June ''the highest economic priority on the international economic agenda.''

Trade barriers cost the industrial world hundreds of billions a year. The Common Agricultural Policy alone costs European Community consumers and taxpayers $134 billion a year.

The latest proposal by EC Agricultural Commissioner Roy MacSharry would reduce subsidies that are leading to overproduction but it is a modest improvement. Aid to the Soviets has grabbed a lot of attention, but the chief priority for the G-7 remains the liberalization of world trade.

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Revised: June 3, 1995

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