G-7 Summit to Put Spin On Jobs, Aid to Russia

Leaders of industrial powers to push for Yeltsin reforms

The French are famous for their souffls - beautiful gastronomic towers of hot air.

Starting June 27 in Lyon, France, the seven leaders of the top industrialized countries will hold a two-day summit that will include plenty of souffl - and a little steak au poivre.

Of course, between photo opportunities and meals worthy of a Michelin guide, the leaders will tackle the main economic problems of job creation, debt relief for poor countries, a larger fund for bailing out mismanaged countries, and future aid for the Russian economy. As in past summits, they will also talk about crime, drugs, and money-laundering.

"At this summit there will be no central issue," says Bob Hormats, vice chairman of Goldman Sachs International Inc. and a former planner of the events for Presidents Ford and Carter. "If Boris Yeltsin were in Lyon, there would be great drama. But since he is not there, it will be less dramatic." Although Mr. Yeltsin was invited, he remained behind in Russia to campaign for his reelection in a runoff vote to be held July 3. Yeltsin is sending his prime minister, Viktor Chernomyrdin.

Even so, there is likely to be a significant amount of discussion about Yeltsin's reforms and chances for reelection. "I expect that Russia will be something the leaders will want to discuss at least with Prime Minister Chernomyrdin," says Lawrence Summers, deputy secretary of the Treasury. However, a French official close to summit preparations says, "Our concern is not to interfere with the democratic process, which we welcome, but to urge the Russians to continue progress toward reform."

President Clinton is likely to hear from European leaders about the Helms-Burton law that came into effect March 15 (see story, Page 8). It seeks to reinforce the United States embargo of Cuba by punishing businesses that do business with Fidel Castro's government. The US has already warned three European companies to get out of Cuba or face sanctions, which include denying their executives entry into the US. There is more congressional legislation that will do the same thing for companies dealing with Libya and Iran.

Lyon steps forward

The summit will be held in Lyon, which has often has lost out to other French cities such as Versailles, Cannes, or Biarritz for hosting glamour events. An early industrial and gastronomic center, Lyon has been on a beautification campaign for the last several years. A new lighting system and lots of paint have changed the look of the city, which spent $7 million to prepare for the meeting. "This is a unique occasion for our city to gain recognition and international stature," says Lyon mayor Raymond Barre, a former French prime minister.

The meeting will provide the seven leaders plenty of time for "personal diplomacy."

There are three new leaders from Japan, Italy, and France. In addition, there are heads of state from Canada, Germany, Britain, and the US. For the first time, the leaders have also invited Boutros-Boutros Ghali, the secretary-general of the United Nations. Also invited are James Wolfensohn, the president of the World Bank; Michel Camdessus, the managing director of the International Monetary Fund; and Renato Ruggiero, director-general of the World Trade Organization. They will participate in the discussions about aid to developing countries and other issues.

This will be the first time Mr. Boutros-Ghali will meet with President Clinton since the White House decided to oppose his reelection as the UN's top official. "It will be interesting to have Boutros-Ghali there when the US has pulled the rug out from underneath him," says Bruce Stokes, a senior fellow at the Council on Foreign Relations.

Although there is no planned discussion of China, Mr. Stokes says it would be surprising if the leaders did not discuss the Asian giant during their informal meetings. "We need to tackle how to handle an economy, with all its problems, that is trying to integrate itself into the global economy," he explains.

For example, China is pressing to become a member of the World Trade Organization, the ruling-setting body for international trade. However, the recent dispute with the US over the pirating of films "focuses on the fact that China is incapable of enforcing its own trade agreements," Stokes says. A year ago, the Chinese had promised to shut down facilities that were copying films, music, and software. The Chinese did not shut down these factories until the US threatened the country with billions of dollars in trade sanctions.

Stokes says the US and its trading partners need to agree on how to enforce trade agreements with such countries as China.

"We need to make sure the Japanese and Europeans are singing in the same choir as we are," he says.

Mr. Hormats says there is a good argument for inviting China to participate in future meetings as an associate member of the G-7. "You can't duck it forever," he says.

For the Europeans, the major issue will be job creation. With 18 million unemployed in Europe, the leaders are struggling to find new ways to stimulate employment. French President Jacques Chirac recently floated the idea of a European approach that preserved "respect for the social dimension." However, his appeal did not get much support.

German Chancellor Helmut Kohl, who in past summits has been able to point to his economic accomplishments, now faces an unemployment rate of nearly 10 percent and a growth rate expected to fall below 1 percent this year.

On June 15, some 350,000 Germans protested the government's austerity plans, the largest protest in Germany since the end of World War II.

"The big US hope is that Germany will become more flexible," says C. Michael Aho, a professor at Columbia University's Graduate School of International Affairs.

For example, German retail stores close much earlier than US stores. The German unions have long fought longer hours.

As at past summits, there will be a discussion of ways to reduce the debt burden of the world's poorest nations. Japanese Prime Minister Ryutaro Hashimoto and French President Jacques Chirac are expected to ask their colleagues to increase foreign aid.

However, four of the seven nations cut back their aid in 1995 as part of their budget-cutting process. The US hopes to win the approval of the other countries for the International Monetary Fund to sell gold to fund some of the debt relief.

The questions of aid to Africa

Last month, 25 nations, including the US, contributed $2.6 billion to fund the African Development Fund, a lending arm of the African Development Bank, which had been effectively without resources for about two years.

On June 21, 16 donors meeting in Osaka, Japan, agreed to an additional infusion of $420 million to the ADF. France and Japan will each contribute $75 million. Due to congressional budgetary restrictions, the US did not participate in this second round of giving.

France and Japan both have extensive commercial interests in Africa, the continent that has been hardest hit by the recent falloff in international aid. This reduction has come at a difficult time for the region.

Tourism, a major income producer, fell last year. In addition, critics argue economic reforms have not worked.

"Poverty is growing, and it is questionable if the IMF reforms are working," Stokes says.

Cleaning up money-laundering

The leaders are also expected to discuss ways to further cut back on money-laundering. In recent years, regulatory authorities have adopted tougher "know your customer" laws for banks.

The US, for example, is currently investigating Citibank's Private Banking Group, which helped Raul Salinas, brother of former Mexican President Carlos Salinas de Gortari, shift large amounts of money into Swiss bank accounts. Raul Salinas maintains he earned the money from corporations.

The world leaders are concerned because such money movements make corruption easier.

They are also concerned because drug smugglers are increasingly adept at moving funds around the world.

"You can either stop the drugs or stop the money," Mr. Summers says.

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