G8 Finance Ministers meeting -  Global power shift

June 17, 2006

The G8 Finance Ministers met in St. Petersburg, Russia, in preparation for the global G8 meeting in July. The G8 consists of Russia, the U.S., Canada, Japan, Germany, Britain, France and Italy. Several non-G8 ministers were also in attendance, including China, India, Brazil, Australia, South Korea and Nigeria, as well as the heads of the World Bank, the IMF, and the EU. This shows the growing importance of emerging markets, and the declining irrelevance of the World Bank and IMF.

For example, Paul Wolfowitz, head of the World Bank, told the emerging markets in a special meeting not to loan too much money to poor countries. This was because he is concerned about China and other emerging markets taking over the lending role of the World Bank, and because China does so as part of trade agreements.

The agenda included the impact of oil on the global economy, energy security (also the topic of the July G8 meeting),and efforts against terrorist financing, avian flu, and public financial illiteracy. The ministers urged developed countries to lower farm tariffs, needed to successfully complete the Doha round of World Trade talks,. They also expressed their confidence in the strength of the global economy, with the caveat that high oil prices and the U.S. current account deficit could derail global growth.

What It Means:
These statements will lay the groundwork for the G8 meeting in July. They are significant, in that they show the increasing importance of emerging markets in global affairs, especially Russia and China. The “old regime” which includes Europe, the U.S. and the IMF/World Bank, are uneasily trying to limit the role of the “new regime” which includes oil producing nations and emerging markets. As the world continues this transition, the G8 will need to be expanded, or perhaps smaller members, such as Italy, will be replaced by powerhouses such as China. Otherwise, these bodies risk irrelevancy in global affairs.

Action Steps:
Despite the gyrations of the world’s stock markets, the G8 meeting did not seemed concerned about current stock market volatility. This lends support to the theory that current volatility is just that, and should abate by the end of the summer.

Source: G8 St. Petersburg Russia English web site