G-7 finance ministers meet in Tokyo tomorrow
The meeting of finance ministers and central bank governors from the Group of Seven industrialised countries in Tokyo on Saturday must strengthen cooperation and deliver a clear message to markets amid growing concerns over a worldwide economic crisis caused by confusion in the financial and stock markets.
The G-7 meeting, to be held at the government's Mita Kaigisho hall in Minato Ward, Tokyo, is the first in Japan in eight years. In the past, these meetings have had a significant impact on the world economy and were once regarded as a behind-the-scenes force that decided currency policies.
The summit meeting of heads of nations is a higher-level affair, but is gradually becoming more akin to a formality and a rite. As such, it has come under fire for producing general policies without concrete measures.
In contrast, international markets pay close attention to the G-7 meeting of financial experts, as it discusses concrete steps to deal with monetary problems.
In 1985, finance ministers and central bank governors from Japan, the United States, Britain, Germany and France met at the Plaza Hotel in New York and issued a statement on foreign exchange rates, known as the Plaza Accord.
The next year, Canada and Italy joined the exclusive club to turn the G-5 into the G-7. The Louvre Accord, established at a G-7 meeting in Paris, also was a significant agreement. Since then, the G-7 has issued a statement whenever the world economy has reached a turning point.
However, G-7 statements are not always welcomed. The statements have sometimes greatly disappointed markets, but this is proof that expectations for G-7 finance ministers and central bank heads are high.
International financial and stock markets also have high expectations for the G-7 meeting in Tokyo. With the world economy in dire straits, calls are growing for financial and fiscal authorities to come up with effective measures.
Against this backdrop, if the G-7 fails to map out clear and effective measures, it will betray the markets' expectations.
Topping the agenda will be measures to cope with the crisis caused by subprime mortgages, which were extended to low income earners in the United States.
Since summer, Japanese, US and European currency authorities have mapped out measures to try to control the crisis, but with major financial institutions' losses continuing to balloon, a shock wave is running through stock markets.
As such, the G-7 meeting has to deal holistically with the subprime loan crisis and devise a time frame to implement concrete measures to ease market concerns.
Also on the agenda will be regulations to govern those ratings companies said to have worsened the subprime loan crisis.
Some ratings companies gave high ratings to financial products related to subprime loans, but made an about-face immediately after subprime loan defaults emerged.
Some critics said such companies had added oil to the fire of the crisis.
Thus, information disclosed by ratings companies and how to boost regulations to control them are likely to be discussed in the meeting.
The evaluation of sovereign wealth funds--known as SWFs, or state-affiliated funds--are also likely to be discussed.
The SWFs, which operate national assets such as oil money and foreign reserves, have begun to operate many funds mainly in Middle Eastern countries, China and Singapore.