Expect talk, little action, at economic summit

When leaders of the major industrial nations get together at the end of this week, they will have plenty of economic concerns to discuss.

Whether the Group of Eight, meeting in Genoa, Italy, can or will do anything about the problems - well, that's another thing.

"They are unlikely to adopt any action on any of these matters," says Clyde Prestowitz, president of the Economic Strategy Institute, a Washington think tank.

The agenda is long for the leaders of the United States, Japan, Germany, France, Britain, Italy, Canada, and Russia.

One big issue: The dollar has risen about 10 percent this year against a batch of currencies from major industrial nations. The euro and yen, the two other key currencies, are weak.

The dollar's strength has American manufacturers making loud noises about import competition and export difficulties. But the Federal Reserve sees the mighty dollar as a weapon against inflation.

In Europe, the weak euro is somewhat of an embarrassment. But it makes European exports more competitive.

Last week, Wim Duisenberg, president of the European Central Bank (ECB), got some flack for saying he was not concerned about the euro's weakness.

So experts aren't expecting a repeat of the Plaza Accord, agreed to in 1985, to weaken an overly strong dollar on the foreign exchange markets. Key ministers met at the Plaza Hotel in New York back then, when the dollar had already started to head down.

Their action kept it moving in that direction.

Another issue: The world economy is slowing. It hasn't escaped the impact of the US slump.

"It is not something to get uptight about," says John Williamson, an economist at the Institute for International Economics in Washington.

The G7 finance ministers (minus Russia), meeting earlier this month in Rome, held that the worst of the global economic slump may be nearly over.

Others are less sure.

Merrill Lynch economists marked down their growth forecast for Euroland (the 11 nations using the euro) to 1.6 percent this year and 2 percent next year - hardly a thriving scene.

Japan is slipping, for the fourth time in a decade, into a mild recession. Other nations in Asia are faltering, as their technology-based exports to the US shrink.

Singapore expects hardly any growth this year, after a 9.9 percent boom last year. Growth is slowing in Thailand, South Korea, Taiwan, and Hong Kong.

Financial troubles in Argentina and Turkey are creating unease in other "emerging" nations.

What to do about it?

Mr. Prestowitz would like to see quiet pressures put on the ECB to ease interest rates.

William Cline, an economist at the Institute of International Finance, a research group in Washington for the world's largest financial concerns, wants the leaders to give support to the financial reforms proposed by Japan's new prime minister, Junichiro Koizumi.

At the same time, economists are concerned that the reforms, such as eradication of bad loans saddling Japan's banks and reduction of the national budget deficit, might temporarily worsen Japan's slowdown.

Their hope is that such reforms will boost Japanese consumer confidence, encourage spending, and bolster the economy, notes Richard Reid, an economist in London for Schneider Salomon Smith Barney, a major investment banking firm.

US Treasury Secretary Paul O'Neill calls for reform of the international financial institutions, such as the International Monetary Fund and the World Bank. For instance, he urges development banks to focus more on education as an antipoverty tool, make more grants rather than loans to the poorest countries, invest more in nations in such bad shape that they can't attract private capital, and boost the fight against corruption.

Last month, a special United Nations-sponsored group, the High-Level Panel on Financing for Development, urged changes in the 50-year-old system of international economic governance to meet the challenges of globalization. One suggestion was to have a Globalization Summit.

Experts suspect that the G8 will not take significant action in this institutional governance area.

The leaders, however, may urge the World Trade Organization to get on with another round of trade liberalization when its ministers meet in Qatar in November.

Other topics for President Bush and the other leaders at the economic summit include global warming and curbing the spread of small weapons .

The summit may be a talk fest. But talk can be useful.

(c) Copyright 2001. The Christian Science Monitor

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