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Friday, 8 February, 2002, 14:27 GMT
G7 to discuss world recovery
Japanese Prime Minister Junichiro Koizumi chats with Finance Minister Masajuro Shiokawa
Japan's economy will be scrutinised
Efforts to end the world economic downturn and measures to lift the weak Japanese yen will be on the agenda when finance ministers and central bankers from the Group of Seven industrial nations meet in Ottawa, Canada.

The Group of Seven:

United States
Japan
United Kingdom
France
Italy
Germany
Canada
The president of the World Bank, James Wolfensohn, and the managing director of the International Monetary Fund (IMF), Horst Koehler, will also attend the talks which are expected to conclude that a global economic recovery is just around the corner.

Ahead of the meeting, the Organisation for Economic Co-operation and Development said its key economic indicators signalled that, indeed, the world economy is about to bounce back.

But as the world's economic policymakers gather for a kick-off working dinner on Friday night, they will be well aware that serious challenges lie ahead.

Weak yen

The dollar's strength against the Japanese yen is expected to be a particularly contentious issue.

Business leaders and economists alike have accused Japan of operating a deliberate weak yen policy in a bid to bring about an export led recovery.

Japan's problems pose a major headache for the global economy.

Its banks' mountain of non-performing debts and its government's slow economic reforms prolong its recession, robbing other rich countries of a powerful market place and potentially delaying a world economic recovery.

European row

Once again, a back injury will keep Germany's finance minister, Hans Eichel, away from a major international meeting.

But his country's budget deficit will nevertheless be discussed by his fellow European G7 members.

They are believed to be outraged by an anticipated intervention by the European Commission which is worried about the German, as well as by the Portuguese, budget deficits.

Under the rules set out in the European Union's growth and stability pact, the deficits must not exceed 3% of a country's gross domestic product (GDP).

To prevent this from happening, both Germany and Portugal could be forced to rein in spending at a time when they are keen to inject cash into their economies to stave off recessions.

Poverty

Beyond their own economies, the G7 members are also expected to consider ways to revive economic growth in the world's most poor countries.

In letters to Le Figaro in France and the Financial Times in the UK, the French finance minister Laurent Fabius called for the G7 meeting to consider ways to boost growth in the developing world, including both aid and liberal economic policies.

Mr Fabius called for balanced trade with the developing world, debt restructuring and a strengthening of the currency reserves of developing countries.

Again, the EU growth and stability pact was under fire: Mr Fabius argued that the pact made up a budget constraint which made it difficult for EU member states to set aside cash for the needy in their budgets.

Agenda setting

Financial market professionals will watch the Ottawa events unfold with great interest.

The informal sidekick to the more formal Group of Eight (G8) - which includes the original seven plus Russia - has no permanent staff, no headquarters, no set of rules governing its operations and no formal or legal powers.

And yet, the G7 has assumed an informal agenda-setting role and will often debate international economics and financial issues before major decisions are taken by organisations such as the World Trade Organisation, the World Bank and the IMF.

The 1998 Birmingham Summit saw full Russian participation, giving birth to the G8.

But the G7 continues to function alongside the formal summits, often to prepare the groundwork for G8 summits; Russian participation in financial and economic discussions is not always welcomed.

See also:

01 Feb 02 | Business
Forum hopes for economic recovery
30 Jan 02 | Business
US economy shows unexpected strength
30 Jan 02 | Business
Bush promises to defeat recession
25 Sep 01 | Business
G7 forecasts delay to US revival
16 Jul 01 | Business
Russia's money laundering charges
29 Apr 01 | Business
G7 bullish on growth prospects
03 Sep 01 | Glasgow 2001
Magic number seven for decision making
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