THE Group of Seven is an exclusive and powerful club. By themselves, the stable democracies that constitute its membership account for more than half the globe's economy.
But when they meet tomorrow in the tangy salt air of Halifax, Nova Scotia, G-7 leaders are likely to focus as much on who isn't in the room as who is.
The collapse of the Mexican peso has underscored how the trade and financial fortunes of the world's most powerful economies are increasingly linked to the volatile developing nations.
Uncomfortable with the risk of investing in fast-industrializing nations that are only flirting with market reforms, leaders from the United States, Britain, Canada, France, Germany, Italy, and Japan will consider ways they can help control their fate. They vow to head off future problems with better surveillance and a multibillion dollar emergency fund.
The United States, with the biggest economy and the most at stake in the emerging markets, is leading the charge.
First, the US is pushing for what costs the least and yields the most: requiring governments to publish economic and financial data in time for investors, bankers, aid donors and other interested parties to avoid blind decisions. If, for example, Mexico's heavy borrowing, dwindling currency reserves, and soaring trade deficit had been more widely known, or even monitored by the International Monetary Fund, financial analysts could have cautioned clients about the risks of putting money into that emerging market under those conditions.
Second, the US wants to pass the hat around to make a crisis fund available for shoring up an ailing economy whose health is crucial to the well-being of the world economy. Still smarting from its own fight to mobilize more than $20 billion for the Mexican bailout, the White House hopes the hat won't return empty. "The United States cannot be the lender of last resort to the world," US Treasury Secretary Robert Rubin said last week. But with all the G-7 members on a budget diet, their chances of financing an international emergency fund are slim, even if the pooled effort is designed to benefit them.
Lawrence Summers, Treasury secretary for international affairs, expects the G-7 countries will go beyond their own coffers for contributions. They'll have to, if the Mexican fund was any indication: Many US congressional leaders bitterly opposed it while other G-7 nations dragged their feet when asked for donations. US officials intend to tap cash-rich Asian countries.
While G-7 countries worry about putting the rest of the world in financial order, they still have to mind their own internal problems and their impact on the developing world.
The US, which provided the most horsepower in the G-7 drive from recession to recovery, is now skidding. Joblessness is edging up and income growth is declining. Many observers, including Alan Blinder, Federal Reserve vice chairman, caution that those trends could throw the economy back in recession.
Unemployment rates remain stubbornly high in Europe, and even relatively high-growth countries cannot put their unemployed back to work. The persistently high yen has dampened prospects for Japanese firms and saddled them with inventories.
"There is a real danger of a simultaneous slowdown in the G-7 countries," says Robert Hormats, vice chairman of New York-based Goldman Sachs, International. Every G-7 member has revised its economic forecast downward. Recession looms ahead, he says.
Fred Bergsten, director of the Institute for International Economics, warns that "a new global recession could be upon us shortly, with sharp slowdowns now apparent in all three of the large industrial regions. More Mexicos are quite possible."
The G-7 partners need not look beyond their own club for the importance of averting risk. The US-Japan auto dispute, which threatens to turn into a full-scale trade war, shows G-7 devisiveness at its worst.
Washington has already incurred the wrath of Tokyo by threatening to impose punitive tariffs on imports of Japanese luxury cars because of Japan's closed auto market. President Clinton is scheduled to meet privately with Japan's Prime Minister Tomiichi Murayama in Halifax. Despite the administration's contention that the entire world will benefit from Washington's efforts to pry open the Japanese market, there is no G-7 support for Mr. Clinton's Japan policy.
Last week, Leon Brittan, the European Union trade commissioner, teamed up with the Japanese to condemn the US for employing unilateral measures in violation of the new World Trade Organization's rules. Mr. Brittan criticized US demands for Japanese automakers to purchase more US- and foreign-made parts as he reached his own separate EU auto trade agreement with Tokyo. The EU's triumph further isolates the US and relieves European automakers, who worry that greater US access to Japanese markets would displace their own exports. But it shows just how fractious the G-7 can be.