G-7 Agrees to Act to Boost World Growth

Finance ministers and central bankers of the world’s seven leading industrial powers agreed Saturday to focus their efforts on bolstering sluggish world growth but stopped short of coming up with a unified strategy for doing so.

Most significantly, Germany gave no indication that it is prepared to lower its interest rates, which have reached their highest levels in almost half a century. That also ties the hands of other European countries, because under Europe’s new monetary system, the rates of Germany’s neighbors are linked to those set by the Bundesbank.

Separately, the officials of the so-called Group of Seven, who meet two or three times a year, called upon the International Monetary Fund and World Bank to make eight former Soviet republics--Russia, Azerbaijan, Ukraine, Kazakhstan, Armenia and the three Baltic states--full members by this spring. That would give them access to both the financial resources and the technical expertise of the two international institutions, which could significantly ease their painful transitions to free-market economics.

U.S. Treasury Secretary Nicholas F. Brady described the outcome of the meeting as a major shift. “There is a difference of view today among the G-7 ministers from that which existed a month ago,” Brady said.

For almost a year, the United States has unsuccessfully attempted to persuade the rest of the group--Germany, Japan, Britain, France, Canada and Italy--to give less weight to their fears of reigniting inflation and embark on a more single-minded policy of promoting world growth. Warning that the dangers of global stagnation are far worse than inflationary threats, the United States has pressed in particular for lower worldwide interest rates.

Other countries argued that this is a self-interested stance on the part of the United States, because lower rates would stimulate demand in the other major economic centers, and thereby create larger markets for U.S. exports that could help pull America out of its recession in time for this year’s elections.

In recent months, however, worldwide growth has slowed significantly more than was expected, and there is evidence that the G-7 officials are increasingly concerned about it.

The communique they released at the end of their seven-hour meeting at a Long Island hotel on Saturday made virtually no mention of inflation, except to say that the prospects for it have “eased considerably.”

The document stressed agreement on the need “to intensify their cooperative efforts to improve the conditions for non-inflationary growth in their economies, thereby strengthening the world economy.”

Brady said that the five-page communique carried far more meaning than such boilerplate language would indicate.

“When you have the finance ministers and central bank governors of the G-7 countries changing their view, changing their discussion, changing the way they talk about growth at this point in time . . . that’s a big change,” he said.

Yet another official, speaking on condition that he not be identified, cautioned that while the G-7 participants are paying more heed to economic growth, “there is no consensus with the (United States), quite frankly, on doing anything about it.”

In discussing the former Soviet republics, British officials had pressed the G-7 to make some sort of commitment to putting together a fund that would help stabilize the ruble, as they did for Poland’s currency.

However, U.S. Treasury Undersecretary David Mulford said, “The conclusion was that at this time it is not appropriate to have a stabilization fund.”

A senior Treasury official added that economic reform in the republics “is just not far enough along, not comprehensive enough, not tight enough” to make such a fund workable.

“If you do anything prematurely,” the official added, “all you are doing is setting up a conduit by which you finance capital flight” from the struggling new nations.

Group of Seven Plots Global Economy

MEMBERS: Finance ministers and central bankers from the world’s seven richest democracies--the United States, Germany, Japan, Britain, France, Canada and Italy.

FUNCTION: Discusses and sets broad policies on interest rates, economic policy, exchange rates, trade, Third World debt, aid to developing countries and the international economic agencies. Meets two or three times a year.

ECONOMIC SUMMIT: Attended by heads of government of the G-7 countries--and their foreign ministers and finance ministers--the annual summit provides the major political impetus for global economic initiatives that range from trade talks to operations designed to combat laundering of drug money.

BACKGROUND: The G-7 was formerly the G-5--comprising only the United States, West Germany, Japan, Britain and France. Canada and Italy were added in 1986 after complaining that they were being left out of decisions that directly affected their economies.