Economic clout of G7 waning

The leaders of the seven rich industrialised democracies, known as the G7, met in Ise-Shima, Japan, for their annual summit from May 26-27, 2016. These seven countries have taken upon themselves the responsibility to analyse the global economic situation and take steps to rectify anomalies and boost economic growth. And as a corollary, the important issues of security have also been introduced in its agenda. 

The summit ended with the issuance of a declaration and seven other documents, drafted by Sherpas before the summit. The 32-page declaration focused on the world economic situation and conflicts. It also addressed concerns related to refugee crisis, terrorism, climate change, women issues, cyber security, development, etc.  

Since the recession of 2008, the global economic situation has recovered, but the recent IMF World Economic Outlook (WEO) says that recovery is threatened by negative growth in some developed economies and low economic growth in emerging countries. For instance, the slowing down of the Chinese economy, from double digit growth in the past decade to 6.5 percent in 2016, is a source of major worry for the world economy. China's slowing exports and imports will affect many countries directly. China, of course, says that it deliberately slowed its growth to maintain ecological balance, and consequently initiated reforms for balanced growth.

What is striking is that finance ministers of the G7 countries, who met from May 20-21, 2016, could not agree on the fiscal policy that the G7 should adopt collectively to address global economic weakness. Japan and the US called members to boost fiscal stimulus, but Germany and Britain insisted on fiscal austerity. EU is in a financial mess and its four G7 members have enormous public debt and suffer from low growth. Naturally, they pursued their individual national interest stubbornly. The malaise related to low growth lies in falling demand, and fiscal stimulus is needed to prop up consumption. 

The declaration, reflecting the disagreement, says, ".... taking into account country-specific circumstances we commit to strengthening our economic policy responses in a cooperative (not collective) manner ....... to swiftly achieve a strong, sustainable and balanced growth pattern".  In other words, the seven leaders have decided to "go-your-own-way", as far fiscal policy matters is concerned. 

Apart from deliberating on serious issues of economy and security, the leaders' outdoor activities attracted media attention. Notable among them was Barack Obama, the outgoing US president. Barack Obama was the first sitting US president to visit Hiroshima after the summit, and paid tribute to the victims of the US atomic bomb attack and called for a "nuclear-free world".  President Obama, however, refused to apologise for the American misdeed that was carried out 71 years ago.  

Earlier, President Obama visited Vietnam from May 23-25, 2016, and lifted the US ban on the sale of lethal military hardware to Vietnam. After the fall of Saigon (Ho Chi Min City) in 1975, it has taken four decades for US to normalise relations with Vietnam. This normalisation is not without political and security considerations. The lifting of arms ban is clearly directed against the militarily powerful China asserting its sovereignty over the East and South China seas.

Interestingly, none of the G7 members, except Japan, is directly involved in disputes with China. But then it was at Japan and US' insistence that a section was devoted in the summit declaration. It indirectly criticised China stating, "We are concerned about the situation in the East and South China seas, and emphasise the fundamental importance of peaceful management and settlement of disputes". Obviously, the indirect reference has been made keeping in mind that China is scheduled to host the more inclusive G20 summit in September 2016, which also includes the G7 countries. 

The Chinese Foreign Ministry immediately reacted strongly to this assertion, stating that South China Sea issue had "nothing to do" with G7 or any of its members. "China is resolutely opposed to individual countries hyping up the South China Sea for personal gain", declared the Chinese spokeswoman.

Another non-summit issue that made headlines was Britain's upcoming Brexit referendum on June 23. Though there was no mention in the declaration, all the leaders warned Prime Minister Cameron not to leave the EU, as Brexit could lead to turbulence in global financial markets and weaken the British economy. 

The other important side event at the summit was the Outreach Meeting. Leaders of seven countries, including Bangladesh, were invited to deliberate with the G7 leaders. Prime Minister Sheikh Hasina in her statement called upon the developed countries to be more generous in helping the developing world with transfer of technology, mobilisation of resources, and capacity building. She used the occasion to meet the leaders separately to discuss bilateral issues. During the bilateral meeting, Japan's Prime Minister Shinzo Abe assured Prime Minister Hasina that Japan would provide $6 billion as assistance to Bangladesh.   

China, the second largest economy in the world, is not a member of this so-called informal but powerful club, because it is not a democracy as defined by the West. Russia was suspended in 2014 from the group for annexing Crimea and the group reverted from G8 to G7. 

G7 countries, which together account for nearly 45 percent of the world economy (which is gradually dwindling), have immense powers over the international financial institutions - but they have a lot of differences among themselves. And the exclusion of Russia and China, which together contributes almost 15 percent (which is increasing) to the world economy, for political reasons, limits the group's ability to redress world economic anomalies.  

Every time the G7 leaders met in the past, they spoke of dangers to the world economy and made extensive recommendations, but nothing ever seems to have been fixed after these meetings. As G7's clout wanes, the Ise-Shima Summit declaration is likely to have only marginal impact on the global economy.

The writer is a former Ambassador and Secretary.