3. Canada's Approach to Birmingham

Looking ahead, the G7 and Canada's diplomacy in it are likely to exhibit the same underlying continuity that dominated at Denver. British Prime Minister Blair's support for at least as much Russian participation in Birmingham as at Denver, despite the economic difficulties Russia encountered in the autumn of 1997, underscores the strength of the G7's democratic character. This emphasis is endorsed by Prime Minister Chrétien. The Birmingham "Summit of the Eight" is thus likely to welcome Russia as a full participant, with no separate session reserved for G7 leaders to discuss economic and financial matters among themselves.

There remains, however, the question of whether Russia will secure greater participation in the G7 finance ministers forum. This is an issue over which the Canadian government has mixed views. It is one further complicated by the impending introduction of the "Euro", and ensuing speculation that the existing five European members of the G7 may become represented by the European Union alone or that the G7 may contract into a de facto financial G3 composed of the US, Japan and Germany. At stake are such questions as whether Russian reform is best induced by the socialization effect of full membership now or the incentive effect of future participation for already accomplished and irreversible reform, how the inclusion of Russia would help address the systemic challenges of November 1997 and whether the full inclusion of Russia would deter or facilitate any contraction into a G3 that excluded Canada. It is worth noting that while APEC admitted Russia as a member at the November 1997 leaders meeting, Canada opposed Russian inclusion, a stance consistent with Prime Minister Chrétien's view of APEC as an economic club. Early British efforts to make Birmingham a leaders-only summit, and one focused on a few issues - notably employment and crime - point to the continuing character of the G7 as a place for democratically- elected leaders to engage in priority economic issues.

A further complicating factor is the advent of the Asian currency crisis in the summer and autumn of 1997. This issue dominated the meeting of G7 finance ministers at their September 1997 meeting in Hong Kong, generated a broad review of how the G7 should best deal with such crisis and placed issues of international financial system management rather than Russian reform back at the forefront of G7 attention. (24) At Hong Kong the G7 Finance Ministers, meeting both separately and as part of the G7 Board of Governors, made several historic decisions: to increase the IMF quota share by 45%; to amend the IMF Articles of Agreement within the year to make the IMF responsible for capital account liberalization; to strengthen IMF involvement in banking and financial sector reform, to improve national governance by reducing the corruption that comes with crony capitalism; and to increase the allocation of SDR's. (25) On the quota share increase Canada joined with its G7 colleagues to induce a resistant but internally divided US, fearing Congressional opposition, to accede at the last minute to a 45% increase. On capital account liberalization, an issue pioneered by the British and adopted by IMF Managing Director Michel Camdessus as his own, early misgivings within the Canadian Department of Finance about the implications for national pension reform and RRSP foreign asset eligibility were overcome, as Canada became part of the G7 consensus. Canada also joined the initiative of the US and Japan, at the outset of 1997 to emphasize banking and financial sector reform. (26) Canada further supported the very strong US interest in addressing governance issues, which the IMF took up for the first time at Hong Kong.

Such issues highlighted the need for the G7 to remain exclusive forum of like-minded members with advanced economic credentials and understandings to perform the essential task of stabilizing the world economy at a time of incipient crisis. It was a sharply different message than that of the autumn 1997, visit to Washington of Jiang Zemin, and his November 1997 post APEC tour of Canada. As these visits took place largely on the terms demanded by the PRC, they represented an act of normalization after the strained US-China relationship since Tienanmien and a reinforcement of the strengthening Canada-China relationship of the Chrétien years. Still there is now little chance that the US, Canada or other G7 members will carry this new move toward engagement into a role for China in the privileged and powerful forum of the G7 itself. (27) To be sure China (outside Hong Kong) escaped the initial stages of the Asian currency crisis, and moved to provide financial support as part of the Manila mechanism that was devised in response. Yet its earlier devaluation and nonconvertible currency, along with the move of the European G7 members to join the Manila mechanism, underscore how limited the PRC's role as a systemic supporter still is. The time for PRC association with the G7 thus remains for the very distant future.