Financial Post G7 Record

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Financial Post, Weekly edition, Wed 14 Jun 95, page 17

Keywords: International finance World Southeast Asia

New economic powers in the world

Tom Grimmer

As the men in suits prepare to sit down at that table in Halifax tomorrow, it's an ideal time for pondering the makeup of this organization. From an Asian perspective, the G-7 looks increasingly like the old world order. And for a beast with economics supposedly at its core, it also seems to be missing some rather substantial points.

We've all grown accustomed to these G-7 rituals. Seven leaders of the industrialized world get together, swap platitudes, talk about the world as it should be (and maybe once was), pat each other on the back, issue a meaningless communique, and go home.

Nothing much ever comes of a G-7 summit, but then no one really expects anything will. At best, it gives some very broad and intentionally vague signals. (If you'd like to know what most Asians are watching at this one, it will be first the potential effect on the US$, and second what transpires between the U.S. and Japan in their auto-trade dispute. Impotent blather about Bosnia will go on page 10.)

But far more than what happens at a G-7 get-together, its importance is symbolic. Lets face it, it is a way of once a year reminding everyone of who calls the shots. Six white guys and one Japanese. Get it?

You may think the Japanese presence means that Asia is represented. Not really. Japan is a different creature among Asian nations, a country allowed by the West to achieve the status it has because of its undeniable economic might and also its value as an ally during the Cold War. In addition, Asia's a varied place, and the Japanese are one among many strong cultures. Japan is also widely resented, for reasons we won't explore here. To think the Japanese represent ''Asians'' is like thinking the Americans stand for everything in the ''West.''

In the past decade, and particularly in past five years, we've seen economics and trade come to the fore in our world. Hence the obsession we have with the likes of NAFTA, APEC, the EU and the WTO. (My advice to any young person looking for a career path: get into acronyms.) If you look at the numbers (which is what all this is about), you start to think that maybe the G-7 is a little narrow by today's yardsticks.

That's a point not lost in these parts. Here's an example: recent statistics from the International Monetary Fund show that 10 nations in East Asia excluding Japan now account for almost one third of the world's foreign exchange reserves. Not counting gold, East Asia holds US$375 billion. The entire G-7 has US$377 billion. All the other nations on the globe combined account for US$436 billion.

Among East Asian nations there are some real stand outs: Taiwan this week announced it holds US$100 bilion. China and Hong Kong combined are more than Taiwan's total. Singapore - with a population of three million - has roughly US$52 billion.

Bean counting, I know, but then G-7 membership is an exercise in accounting: who has the biggest GDP. This of course is calculated in absolute U.S. dollars. But if you take China, for example, and calculate GDP on the basis of purchasing power parity (PPP), it has the third-largest economy in the world. (Best not to worry about PPP then.)

If we turned to talk about savings rates, government indebtedness, trade strength, competitiveness, or a number of other factors, the comparisons would be truly embarrassing.

Something's wrong here. A group of people who supposedly represent the world economic order are sitting down once a year without representation from the most dynamic region in the world. The G-7 makes itself feel better by inviting along Russia for a look - a boy peering in the candy shop window. Or talking about Mexico's troubles - we really must do more for these people who can't control their capital accounts and currencies.

It looks like an old boys' club, slightly out touch with reality and maybe a bit patronizing. It's high time that was changed to reflect the new economic powers in the world. This would mean new responsibilities for Asian nations, perhaps ones that they are reluctant to, but must, assume. Perhaps more significantly, it would also involve an admission by the G-7 that our globe has changed - as tough a fact as that may be to accept.

(Ed. note) Tom Grimmer is assistant director for research with a leading Asian brokerage house in Hong Kong.

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