James Flaherty, finance minister of Canada
With the rise of the G-20, some commentators have written off the G-7. Canada's finance minister James Flaherty dismisses this idea. He spoke to Brian Caplen at the IMF/World Bank meetings last month.
"We have had a lot of meetings in the past 51 weeks. One week from now it will be the anniversary of the G-7 meeting, in the cash room of the US Treasury, on the Friday afternoon when the world markets were threatening to melt down, the UK banks were not going to open on the Monday and there was some question about the international banking system surviving. We had a fairly direct and intense discussion that afternoon, involving the development of a five-point plan which the G-7 adopted and then a meeting with [then US president George] Bush the next morning to get his approval. We had meetings with other ministers in the G-20 that evening and the IMF [International Monetary Fund] to get universal support for the five-point plan [to unfreeze credit markets and protect the banks]."
Mr Flaherty applauds the role played by the G-20 and says there is general agreement "that we must continue to stimulate our economies, that it is too soon to back off and that if we did, we would run the risk of sliding back into recession which is the key lesson of the 1930s. We are all agreed that we will stay the course."
The viability of co-existence
But how will the G-20 co-exist with the G-7? "The G-7 will return more to its traditional role of being a forum for discussion among the G-7 finance ministers and central bankers. It will be less formal, more engaging and more direct, with fewer prepared texts. This is the great value of the G-7 as we saw 51 weeks ago in Washington, DC - when the world economic system was in a state of true crisis and imperilled, it was the G-7 ministers that threw away the communiqué that had been drafted and dealt with the emergency on an urgent basis and moved forward the five-point action plan.
"Now with the need to carry out regulatory reform of the financial systems, the G-7 is also important. These problems arose in the Western industrialised economies so there is a clear role for the G-7 in fixing this and also in dealing with protectionist issues. We need to encourage free trade in addition to fixing the banks and to play our part in stimulating economies and in undoing the public investments in banking systems which are mainly in the G-7 countries."
As far as the G-20 goes, two leaders' meetings are planned for 2010, one in Canada in June and one in November in South Korea, as well as two finance ministers' meetings. In 2011 only one meeting is planned.
"The assumption is being made that we will see some economic recovery in 2010 and there will be less pressure for the leaders to meet [in 2011]. We have had an extraordinary number of meetings, but this has been an extraordinary 51 weeks.
"As far as macroeconomic monitoring [of global imbalances] goes, we have certainly moved in the right direction and we are going to work on the framework. There is a strong desire to put meat on the bones of the framework. China has been flexible in respect of its currency [the undervaluation of the renminbi contributes to the imbalances]. China has been a leading voice in the G-20 and also in the G-7 outreach meetings that we have with the BRIC [Brazil, Russia, India and China] countries so I expect that we would have progress - whether it is as much progress as one would want a year from now, we will see, but it is in everyone's self-interest."
IMF Role
In the international financial architecture, the role of the IMF has also been enhanced by the crisis from the position some years ago when critics were saying it was finished. Yet Mr Flaherty believes that it needs to improve its corporate governance considerably to really be effective.
"The legitimacy of the IMF is enhanced when we make it more balanced [by moving power] from the over-represented to the under-represented. We also have to make sure the IMF is effective in what it does and that requires that the IMF has the tools it needs and the authority it needs from the G-20.
"The other issue with the IMF is the need to reform governance. The executive board at the IMF does not function efficiently and gets involved with day-to-day issues which it doesn't need to. We need to look at not just quotas and voting shares and effective surveillance, we also need to look at the way the IMF is run."
James Flaherty is the finance minister of Canada
