The G7 statement: subjects the media failed to mention

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The Group of Seven finance ministers and central bank governors met in Washington on April 15 and issued the customary statement.

The Japanese media only reported their three favorite issues from the statement, which may have led people to think that the ministers and governors met to talk only about those three issues.

Not at all.

The document clearly indicates that they took up a wide range of subjects for which they are responsible, that they engaged in extensive scrutiny of some subjects, and that they have given some policy guidance to their officials on how to manage the world economy.

The statement also hints at issues that may be taken up by world leaders at the coming Kyushu-Okinawa Group of Eight summit meetings, which Japan will host in July.

The first group of items addresses the world economy. The document stated that prospects for expansion in industrial countries and the world economy more generally have continued to brighten.

It then moved on to individual countries or groups of countries, starting in turn from North America, the United Kingdom, the euro area, Japan and to “emerging economies,” which means most Asian countries and Latin America, and then to Russia.

As is widely reported, one cannot find comments on the sudden and drastic fall in stock prices that occurred in New York. Which is understandable, as the ministers and governors might have wished to allocate the limited amount of time according to their specific needs. They might have wished, given the circumstances, to avoid a premature and perhaps incorrect judgment on the incident without ample analysis and information on the market.

On the Japanese economy, one will find a relatively lengthy treatment, which may imply that there were some lively discussions and, if so, that the passages are worth careful reading.

One will find an interesting passage saying it is important that macroeconomic policies support sustainable domestic demand-led growth in Japan. While a general reading of the passage is that Japan was urged to continue expansionary macroeconomic policies, there is enough room to also read that if the resultant growth proves to be unsustainable, for example, because expansionary macroeconomic policies were too expensive, then things could be different.

In any case, the fact that the statement touched on Japanese monetary policies and at the same time refrained from mentioning specific fiscal policies confirms one of my basic rules on economic policy coordination among countries, which I tried to formalize in my last article in this column (“Japanese Perspectives,” March 6). Naturally, the Japanese media locked onto the passage about Japan’s economy and economic policies.

Second, the statement took up exchange rates. The fact that they devoted only four lines in the full six pages of text and that the expressions used were customary ones would suggest the subject was considered to be relatively light this time. I think the Japanese media were wrong to judge that, at this juncture, exchange rates are an important subject.

Third, one will find lengthy paragraphs on what the group calls “architecture issues.” There, they take up the roles of the IMF and the World Bank, the contribution of the private sector to financial crisis prevention and resolution, and issues related to newly emerging financial institutions such as “highly leveraged institutions.”

These are topics that are rarely introduced by the Japanese press but have important implications for the future stability of international financial markets. The lengthy description suggests these issues are complex. It also suggests that discussions are still at an early stage and that it will take some time to reach clear-cut conclusions.

The fourth item touched on is money laundering and international crime. Both have recently risen in importance for heads of states and governments, as well as finance ministers. The summit participants will be interested in these subjects at the Kyushu-Okinawa summit meetings. I personally wonder if the inclusion of the OECD’s work on harmful tax practices in this statement is a must.

Last, the statement talks about the debt initiative, by which is meant the relief of debts owed by extremely poor countries so that they may reduce poverty and boost economic growth. While agreeing that debt relief could help the countries, one may well wonder if debt relief and additional grants are that effective in fulfilling those goals. Instead, to effect solid economic development, efforts to bring about political stability, such as ceasefires among warring parties, could prove more effective, at least for some of those countries.

I hope the descriptions I have given here serve as a fair and balanced introduction to the latest G7 statement and have specific relevance to Japanese readers.