OTTAWA (Reuters) - With world financial markets getting back on their feet, rich nations are in danger of forgetting the promised reforms that are needed to prevent the next economic crisis, a senior Canadian finance official said on Monday.
Ottawa hopes to light a fire under G7 finance ministers and central bankers at a meeting next month to inject a renewed sense of urgency into changes that go beyond the high-profile issue of imposing levies on banks and bonuses, officials told reporters in a briefing, on condition of anonymity.
The policy makers will discuss the need for a more flexible Chinese foreign exchange rate, as well as policy tweaks needed within the world’s rich Group of Seven economies at the meeting in the Arctic town of Iqaluit on February 5-6.
Haiti relief and reconstruction efforts will also take a spot high on the agenda, since six of Haiti’s seven largest donors are G7 members, the officials said.
IMF chief Dominique Strauss-Kahn has been invited to the meeting and is expected to attend.
There will be no final communique issued from the meeting, which marks a return to the G7’s roots as an informal forum for solving the pressing economic problems of the day.
By not wasting time fretting over the wording of a communique for external consumption, the ministers and governors will be able to speak more openly and get more work done, the officials said. They will hold a final press conference.
The meeting will discuss the future role of the G7, now that it has been decided that the broader G20 grouping of wealthy and developing economies will be the main forum for economic discussions. There has been some suggestion that this may be the last such G7 meeting.
Holding the meeting in Iqaluit, an isolated Inuit community in Canada’s Far North, where temperatures average -24 Celsius (-11 Fahrenheit) in February and Internet connections are spotty, was a deliberate signal that the talks would be devoid of their usual pomp and ceremony, according to the official.
The main agenda items for Iqaluit are:
- assessing the state of the global economy, the risks and policy responses
- discussion on the state of financial regulatory reform and the reform agenda going forward
- discussion of the need for global adjustments, including foreign exchange policy and broader economic policy, within the G7 and in the broader G20
- discussion on trade (anti-protectionist and further liberalization required) and development.
Being at the center of the global financial crisis, the G7 members -- the United States, Britain, France, Germany, Italy, Japan and Canada -- have a responsibility to lead reform efforts to prevent a repeat, the official said.
He warned that there is a serious risk that the reform agenda will fall to the wayside as the economy recovers and bankers pull in profits again.
However, Canada is opposed to imposing a levy on banks or executive bonuses while European governments have been more open to various proposals along these lines, and U.S. President Barack Obama has proposed a tax on financial institutions.
Finance Minister Jim Flaherty has said he intends no new taxes on the financial sector and is hoping banks voluntarily limit their bonuses, especially since none of Canada’s banks needed taxpayer help during the financial crisis.
But the finance official said there is broad agreement within the G7 that the proposals to ensure banks pay back government bailouts “make sense” and fall broadly within the guidelines laid out by the G20.
He said the G7 meeting would assess whether the financial system is sufficiently capitalized to take on the renewed demand for credit.
China has come under heavy pressure within the G7 to revalue the yuan, and the official said Canada would also like to see more flexibility in the Chinese currency.
But he also said the G7 should look to its own members and identify currency adjustments that may be required.
Reporting by Louise Egan; editing by Rob Wilson