September 14–21, 2003
Volume 7, Number 19
By Sheri Watson
G8 Research Group
In This Issue:
G7 Finance Ministers Meet in Dubai
WTO Doha Talks Fail
Europe and Asia Currency Feud
Also in the G8 News
In the lead-up to the G7 Finance Ministers' September 20 meeting in Dubai, speculations on the hot topics for discussion centred on Asian currencies, economic growth and terrorism. On September 16, Canadian finance minister John Manley predicted the agenda would cover China's currency, trade and reforms aimed at promoting economic growth, as well as European pensions and Japanese banking. It was also anticipated that the collapse of WTO talks would be a topic.
Leading up to the meeting, economists noted that Germany, the Netherlands, and Italy have slipped into recession. Global imbalances were blamed in part, as was a lag in global economic growth. A major focus was Japan's effort to soften the yen, although Japan was showing signs of a strong economic recovery with a peak anticipated in 2004. Observers predicted that Asian central banks were unlikely to halt their intervention until such time as their confidence in the global economy is firmly established. Japan itself recently agreed in public statements that excess volatility in currencies require action. Speculation of the outcome of the G7 meeting pushed the yen to a two-year high against the U.S. dollar.
Overall, the G7 members (meeting without Russia) agree that economic growth is more crucial than budget discipline. This was reflected in the final communiqué, with country-specific agendas set for economic reforms aimed at growth. The document also called for exchange rate flexibility to ease global imbalances, using the term "economic area" rather than naming specific countries. Finance ministers also urged the resumption of the Doha round.
One major issue not on the formal agenda was the reconstruction of Iraq. L. Paul Bremer, the U.S. administrator for Iraq, arrived at the meeting on September along with 10 other officials from Iraq. The final communiqué referred only to a common appeal for the resolution of Iraqi debt by 2004.
Sources: Reuters, Daily Gulf News, Associated Press, Bloomberg, AFP, Independent Bangladesh, Financial Times, News International (Pakistan), Kyodo News, Financial Post, VOA News
WTO Doha Talks Fail
The finance ministers from 146 different countries met in Cancun for the fifth ministerial meeting of the World Trade Organization (WTO) September 8-14, with the talks ending in disagreement and collapse on the final day. The two main camps in the discussion were the richer, more industrialized nations, which sought new regulations in trade, and the less developed countries (LDCs), which sought major reforms in agricultural policy.
The LDCs were roughly organized and led by the G20+, which was a grouping of approximately 90 African, Caribbean, and other LDCs. The group concluded that no deal was a better outcome than that offered to them in Cancun. They saw themselves as offering concessions over trade while gaining nothing in return. Japan had refused to back down on the industrialized nations' demands, while the European Union offered to drop two proposed rules as concession. Four African nations were asking for the U.S. to slash their $4 billion subsidy to American cotton farmers.
In the aftermath of the collapse, different viewpoints and predictions are being offered. The G20+ has declared the failure of the talks a testament to their strength as a bargaining power, and other observers have also heralded the arrival of a new empowerment among LDCs. Some experts have said it is now crucial to push forward with regional and bilateral trade deals.
Others, however, now emphasize the negative impact of the talks' collapse, pointing to disputes over the blame and fears of trade wars breaking out. The World Bank concluded that the failure will negatively affect the global economy, where a successful round could have added US$520 billion to global incomes by 2015. The heads of the International Monetary Fund and the World Bank appealed to governments on September 19 to resist recriminations. On the same day, the UK also expressed regret at the meeting's outcome and called for reforms of the EU's Common Agricultural Policy.
For more on the G8 and the WTO at Cancun, please see the G8 Research Group's on-site reports.Sources: Daily Telegraph, Reuters, Independent, icNorthernIreland, The Standard (China), Financial Times, Xinhua
[back to top]Europe and Asia Currency Feud
In addition to the comments by U.S. treasury secretary John Snow, who recently come out against the pegging of Asian currencies, the European Union this week added its own complaints. The EU's economy is weakened by the position of the Asian currencies as the U.S. dollar depreciates on world markets. Many Asian currencies are pegged to the U.S. dollar, which the EU has complained forces it to adjust its currency accordingly, putting the EU at a disadvantage on the world market. The European finance ministers protest that the EU is overburdened with the task of lightening the U.S. current account deficit. They have decried the American deficit as a danger to the world economy.
EU central bank governor Wim Duisenberg credits the problem to a wider Asian group as opposed to focusing on China, as the United States has. He protests that the EU is in balance, that the source comes from outside in the global economy. The EU considers its economic burden to be the cause of the economic slowdown, a claim supported by the IMF's annual assessment of the euro zone as reported on September 16.
At the Italian resort of Stresa on September 13, EU finance ministers agreed on a common proposal for a higher Asian currency to take to the World Bank/IMF meeting at Dubai. Gerrit Zalm, the Dutch finance minister, suggests that the yuan be pegged to a broader basket of currencies instead of the U.S. dollar. Currently, the Chinese yuan is fixed at approximately 8.3 per dollar. China has said it will keep its exchange rate stable and continue with a healthy policy. But even Japanese officials have labelled the yuan as unsustainable and urged currency reforms. Germany and France have called for a delicate approach, citing the fear that a sudden shift in exchange rate could cause more damaging imbalances.
Sources: AFP, Reuters, Xinhuanet, Channel News Asia, International Herald Tribune, Financial Times, Dow Jones, Taipei Times, Stuff (NZ)
[back to top]Also in the G8 News
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