Financial Post G7 Record

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Financial Post, Weekly edition, Sat 10 Jun 95, page 25

Keywords: Economic summits History Politics International finance GATT International Monetary Fund United Nations

HALIFAX SUMMIT WILL LEAVE ITS MARK: The G-7's lasting contribution will come in modernizing the set of multilateral institutions constructed half a century ago.

John Kirton

From June 15-17, the leaders of the world's seven major market democracies and the European Union will gather in Halifax for their 21st annual G-7 summit. As the third seven-year cycle of summitry comes to an end in Halifax, there is a mounting malaise over whether these politicians - even with more than 2,000 vigilant media on site - will or can do anything of consequence.

The great promise of the end of the Cold War, symbolized by the presence in Halifax of Russia's Boris Yeltsin for a post-summit dialogue with the seven leaders, has evaporated amidst the systematic slaughter of innocent civilians in Chechnya, Bosnia, and Burundi and Russia's unrelenting military occupation of Japan's northern territories.

Within the G-7, the tentative prosperity of the past few years has given way to growing currency volatility and misalignments, slowing growth, persistent high unemployment and employment insecurity, and a conflict over luxury automobiles between the United States and Japan.

A U.S. president already preoccupied with re-election, a newly-installed French president still forging bonds with neighboring Germany, a deeply unpopular prime minister in Britain, and fragile coalition governments in Japan and Italy, reduce the chances of the Halifax summiteers engaging in intensified, innovative, co-operation. And even if they do, some wonder whether these seven can any longer lead a world where power seems to be passing to rising powers such as China, India, Brazil and Indonesia, to trillion dollar-a-day financial markets, and to an Internet-connected global citizenry averse to government intervention and control.

Yet several forces suggest Halifax will still deliver a substantial, if not spectacular result.

France's Jacques Chirac will want to make a successful debut on the world stage, have the G-7 tackle his promised priority of unemployment, and lay the groundwork for the summit he will host next year. Bill Clinton, an eager and often accomplished summiteer, will seek to show his 1996 voters that he still cares about jobs, and has international support to combat isolationist forces in Congress and the U.S. Midwest. Both he and Japan's Tomiichi Murayama, the summit's remaining socialist, now badly need international co-operation to cope with their stagnating economies, misaligned currencies and looming trade war. Germany's Helmut Kohl, a 12-year summit veteran, John Major, a sophisticated G-7 player, and Italy's Lamberto Dini, with valuable central bank and IMF experience, all have potentially productive contributions to make.

Jean Chretien, who as summit host will have to mobilize these talents and integrate their self-interests, brings some formidable assets of his own. His country, far more peaceful, democratic, law-abiding, market-oriented and internationally responsible than today's developing country contenders, remains the world's seventh-largest power in those internationally relevant economic assets that matter in a rapidly globalizing world. Moreover, as the world's leading ecological power, ranking development assistance donor, premier peacekeeper, and lifelong devotee of building effective, inclusive multilateral institutions, Canada has a growing relevance in confronting the new global challenges of the 21st century.

With an economy that is still projected to lead the G-7 in growth in 1995, Chretien comes to Halifax backed by a finance minister, Paul Martin, who has made a credible start to desperately needed deficit reduction, and, above all, a trade minister, Roy MacLaren, who is tirelessly initiating far-reaching trade liberalization on a global scale, rather than reacting to whatever regional designs the Americans propose at a particular time. And Chretien himself brings exceptionally high and enduring public approval ratings, and a skilful performance in countering Canada's most recent separatist challenge from Quebec.

Moreover Chretien, and his personal representative Gordon Smith, have designed the Halifax summit in ways that further its chances of success. They have selected and stayed true to a focused agenda - the reform of international financial and United Nation's economic and social institutions - that seizes the historic moment of a once in-half-a-century anniversary to produce important, permanent change.

Knowing that G-7 members are the only countries powerful enough to lead, but not sufficiently dominant to dictate, Chretien and Smith have consulted extensively with developing countries and other outsiders, to enrich and broaden the support for the G-7 consensus. To enable the leaders to have real exchanges during their 12 hours of discussion, they have made full use in the lead-up to the summit of the G-7's regular forums for trade, foreign and finance ministers and ad hoc ministerial conferences on assistance to Ukraine, information technology, and the global environment. They have refused to distract attention, and dilute the resources, intimacy and solidarity of the G-7, by granting greater financial assistance and participation to the Russians, beyond allowing an additional working dinner. And logistically-challenged Halifax should provide a cosy, down-to-earth ambiance conducive to informal, leaders-dominated, business-like discussions, and a reminder of the transatlantic ties that inevitably link the fortunes of North America, Europe and the wider world.

Although Halifax will most likely not produce the needed package of macroeconomic stimulus and stronger exchange rate management, it will press for employment creation through bolder microeconomic reforms. Its lasting contribution, however, will come in modernizing the expensive, cumbersome, and often competing set of multilateral institutions largely constructed in the very different world of half a century ago.

To maintain the market orientation and democratic modernization of rapidly developing countries such as Mexico, Halifax will institute a new IMF system of improved surveillance, early warning, and frank policy dialogue, backed by a robustly funded, rapid reaction emergency financing mechanism to defend against short-term destabilizing, capital outflows.

Furthermore, it could and should identify those UN institutions - the Economic and Social Council, UN Conference on Trade and Development, the UN Industrial Development Organization, the Regional Economic Commissions, and the Secretariat itself - that most urgently require reform, and point to a credible process for accomplishing such reform.

It also could do much for developing countries by demanding that economic development anywhere be ecologically sustainable everywhere, by relieving the oppressive debt burden of the poorest of the poor through the sale of a small portion of the IMF's unproductive, depreciating stock of gold, by promising to improve aid co-ordination and effectiveness, and by demanding that developing countries not waste the loans and aid that hard-pressed G-7 taxpayers provide by building up bloated military establishments that produce only insecurity and devastation.

Above all, the Halifax leaders can reaffirm their commitment to the reality that a modern, multilateral, rules-based trading system, now finally embodied in the newly-minted but still fragile World Trade Organization, is of vastly greater importance than showing selected voters temporary toughness while telling them whose cars they should buy. Over the past few months Canada has been pioneering several promising proposals for consolidating the WTO, completing the outstanding Uruguay Round negotiations, and maintaining the momentum of trade liberalization. It is now up to Chretien to convince his colleagues to adopt the logic and spirit of these initiatives and thereby give citizens throughout the G-7 the secure access to low-cost products and services, and to job-creating foreign investment and export opportunities, that they deserve.

DNOTE (Ed. note) John Kirton is an associate professor of political science at the University of Toronto, and a leading authority on G-7 summits.

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Revised: June 3, 1995

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