MercoPress. South Atlantic News Agency

G7: much good will but little substance.

Debt relief and further development aid for the world's poorest countries, plus pushing for “exchange rates that reflect economic fundamentals” were the two outstanding points of the G7 Finance Ministers and Central Bank governors meeting held 4/5 February in London and included in the final release.

Sponsored by United Kingdom Chancellor Gordon Brown the proposal to write off the debt of some 37 poor countries and create an International Finance Facility, IFF, with resources from private money markets and/or selling all bullion holding by the IMF and other multilateral organizations was finally ironed out and a compromise draft should be ready to be presented in the G8 summit scheduled for next July in Gleneagles, Scotland.

With Britain in the G8 chair in 2005, Chancellor Brown has been pushing hard for his 100% relief plan for the poorest countries of the world, a modern version of the Marshall Plan which brought US aid to rebuild Europe after World War II. However the United States is not entirely convinced about the IFF mechanism or the idea of selling gold holdings in multilateral organizations to pay for increased aid.

"We could be at the beginning of the final stage of the process were debts that were owed by the poorest countries, built over 20, 30 years, debts that are simply unpayable in the real world, are finally taken care for", said Mr. Brown who described as a "major breakthrough" that international organizations are willing to offer up to 100% multilateral debt relief.

"The relief plan and development aid plan is winning support every day", he added.

But US Treasury Under-Secretary John Taylor who in spite of underlining his country's commitment to poverty reduction, denied support to the IFF mechanism since "this particular mechanism does not work for the US; it works for other countries".

G7 talks also included more immediate issues particularly "excessive volatility" in international money markets which threaten world growth. This is believed to be closely related to the impact of rising developing economies such as India and China; the US double deficits; China's growing trade surplus and pegged currency, and greater efforts from Japan and the European Union to boost the world economy.

China, India, Russia, Brazil and South Africa were invited to participate in the G7 London meeting.

The final communiqué states that "exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely and cooperate as appropriate. In this context, we emphasise that more flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility to promote smooth and widespread adjustments in the international financial system, based on market mechanisms".

Apparently the Chinese delegation discussed the issue but didn't seem prepared to "un peg" the Yuan from the US dollar which given the weaker US currency is now harming Euro zone exports and is not helping to reduce the widening the US trade deficit. Recent statements by leading Chinese officials saying they favour a "stable exchange rate" were interpreted as encouraging signs.

But US 1999 Economy Nobel Prize winner Robert Mundell said Beijing feels that changing its monetary policy is not necessarily convenient for China, "a strong Yuan could create overall problems to the Chinese economy, financial system, labor market and the Central Bank"

"Besides G7 powers to force China to accept changes is limited", highlighted Mr. Mundell. (Following chapter in the July G8 summit in Scotland).-