Oil, Food, Credit to Dominate G-8 Meeting
With surging oil prices, food inflation and a credit crunch that has depressed global growth, leaders from the Group of Eight economic powers face the gravest combination of economic woes in at least a decade when they gather this week.
The outlook has darkened since last year's summit in Germany, when the leaders declared the global economy was in good condition and when oil cost $70 a barrel - which seemed high at the time.
Since then, the U.S. subprime mortgage crisis has erupted, roiling markets and battering major financial firms. Oil has doubled to above $140. Food prices have jumped, hurting the poor in particular and raising the threat of political instability.
"Things have changed for the worse across the board," said Robert Hormats, vice chairman at Goldman Sachs (International) Corp. in New York.
Hormats argued that the economic problems now are more serious and widespread than during the Asian financial crisis of 1997-98, when the pain was largely limited to emerging markets.
"Now you have a financial disorder where the epicenter is the U.S.," he said. Fuel and food inflation "are serious matters that affect large numbers of people."
Host Japan had put global warming at the top of the summit's agenda, but the dilemma of how to respond to accelerating inflation and slowing global economic growth could grab the spotlight.
Prime Minister Yasuo Fukuda has said he hopes the Monday-through- Wednesday meeting at a hot springs resort in Hokkaido, Japan's northern island, will "show some direction" in tackling oil and food prices but stressed it was only one step in a longer process.
On oil, analysts are skeptical that the G-8 leaders - representing the United States, Japan, Britain, France, Germany, Russia, Italy and Canada - will come up with much beyond urging petroleum producers to boost output, reiterating the message of their finance ministers, who met in June in Osaka.
Foreshadowing possible disagreement among the leaders, the finance ministers were divided on where to assign blame for the run- up in oil prices. Germany, France and Italy held speculators accountable, while the United States and Britain said the focus needs to be on boosting production, which has barely kept up with global demand.
Soaring crude prices have forced India, Malaysia and Indonesia to cut subsidies and raise state-set prices on gasoline and other fuels. Last month, China hiked fuel prices as much as 18 percent.
Prices of corn, wheat, rice, soybeans, and other farm goods have surged because of changing diets, urbanization, expanding populations, extreme weather, growth in biofuel production and speculation.
Spiraling fuel and food costs could drive millions into poverty, the Asian Development Bank has warned. In India, inflation has jumped to a 13-year high of 11.4 percent.
G-8 leaders may announce a food aid package or pledge agricultural investment in poorer countries.
The credit crisis and global market turmoil are sure to be discussed, but with central bankers absent the leaders are unlikely to say much about interest rates and currencies.
The summit's main goal will be demonstrating confidence that they can "work through the oil crisis without causing the global economy to melt down," said Tom Cooley, dean of New York University's Stern School of Business.
Oil and energy have been recurring themes at the annual summits, said Goldman's Hormats. "We now have another oil crisis," he said.
The summits originally focused on economic issues, but the agenda has expanded to include terrorism, Africa's development and the environment.
Membership has grown from six to eight, adding Russia in 1997.
Many say it should be expanded to include China, the world's fourth-largest economy, and emerging powerhouses such as India and Brazil - to tackle global issues like energy and climate change.
The G-8 has been reaching out. It plans meetings with African leaders on the summit's first day, and later with leaders from China, India, Mexico, Brazil and South Africa - countries that someday might be a part of the Group of 13.
"These countries are critical to the solution of any of these problems," said Lael Brainard, a n economic adviser in the Clinton administration who attended several summits in the 1990s and now is a director at the Brookings Institution, a Washington think tank. |
