G-8’s Dominance Faces Challenge From China, India
G-8’s Dominance Faces Challenge From China, India
By James G. Neuger
July 10 (Bloomberg) -- Leaders of developing countries confronted advanced nations with a demand for a greater role in the management of the global economy, signaling the drift in power away from the financially distressed West.
Five countries with almost half the world’s population -- China, India, Brazil, Mexico and South Africa -- challenged the hegemony of the U.S. dollar, balked at the industrial world’s strategy for fighting climate change and sought more clout in global markets and institutions.
The encounter in L’Aquila, Italy at the annual Group of Eight summit dramatized the ascendance of emerging nations, led by China, as the worst economic calamity since World War II batters the U.S. and its European allies.
“We have to update and refresh and renew the international institutions that were set up in a different time and place,” President Barack Obama said after the meeting of world leaders ended today. “For us to think we can somehow deal with some of these global challenges in the absence of major powers like China, India and Brazil seems to me wrongheaded.”
Leaders of the G-5, which represents 3 billion people with gross domestic product of $7 trillion, appeared as a united front for a fifth time at the summit of the G-8, the advanced world’s forum founded in 1975.
“What relevance does the G-8 have to set the agenda on anything for the world anymore?” Goldman Sachs Group Inc.’s London-based chief economist Jim O’Neill said in a Bloomberg Television interview today.
Climate Clash
The eight -- the U.S., Japan, Germany, Britain, France, Italy and Canada, along with Russia, a member since 1998 -- unite 880 million people with combined GDP of $32 trillion.
The three-day summit ended with a pledge to spend $20 billion over three years to increase food production in the developing world, with the goal of cutting the number of malnourished people from about 1 billion.
The G-5 took aim at the advanced economies’ call for a 50 percent cut in greenhouse-gas emissions by 2050, saying the policy would suppress the economic growth needed to lift millions out of poverty. No target can be set until world climate talks wrap up in December, they said, insisting on money and technology to help clean up the atmosphere.
Economic Morass
The contrast was highlighted July 7 when the International Monetary Fund said developing countries are leading the way out of the economic morass spawned by the industrial world.
Emerging economies will expand 4.7 percent next year, the IMF said, up from an April prediction of 4 percent. The Washington-based lender forecast growth of 0.6 percent in the advanced economies, up from expectations of stagnation.
China is “better situated to deal with this crisis,” billionaire investor George Soros said in a Bloomberg Radio interview July 7. “The Chinese in my opinion are going to gain in power and influence in a way that people currently don’t recognize.”
In a statement in L’Aquila, the G-5 warned the industrial world against backsliding on aid commitments and sought “a new global governance,” including better representation in the IMF and United Nations.
After parallel summits July 8 in a region rebuilding from an earthquake in April, the G-8 and G-5 met yesterday to work out a statement to at least paper over the diverging worldviews.
Dollar Dispute
Central to their dispute is the status of the dollar, its role as the world’s dominant reserve currency under threat from the $2.3 trillion in debt run up by the U.S. since the start of 2008 to stem the financial crisis.
The G-5 -- mainly China -- held around $1 trillion in U.S. Treasury debt in April, giving them leverage over decisions made in Washington.
Chinese State Councilor Dai Bingguo, who filled in for President Hu Jintao, endorsed the idea of a “diversified and rational international reserve currency regime,” according to Foreign Ministry spokesman Ma Zhaoxu.
The call got little traction inside the meeting, with German Chancellor Angela Merkel saying it was “of no practical relevance.” Brazilian and Russian officials said it may come up again at the wider G-20 forum in Pittsburgh in September.
“There has been concern on the dollar, but there hasn’t been a coherent strategy put forth,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “We don’t think that’s going to be an issue weighing on the dollar for the balance of this year. It’s a much longer term issue.”
For Russian President Dmitry Medvedev, the monetary future is now. At his closing press conference, Medvedev held up a golden coin bearing the words “united future world currency,” which he said was minted in Belgium and handed to G-8 attendees.
“Even the mints” are thinking about a post-dollar world, Medvedev said. The test coin “means they’re getting ready.”