THE PRESS MONDAY, JUNE 4, 1984. Economic summit meeting

Press, 4 June 1984, Page 12

THE PRESS MONDAY, JUNE 4, 1984. Economic summit meeting

The annual economic summit meeting of the Western world’s seven leading industrialised countries usually deplores the folly of trade protection. After the meeting is over, the leaders go home to countries where trade protection is commonly and widely practised. Nothing much changes. This sequence of events may easily lead to the conclusion that the economic summit meetings are a waste of time. The conclusion may not be completely justified because the public declaration of opposition to trade protection in such company might help one or another of the leaders to resist even greater pressures for trade protection. Although such an achievement is not outstanding, the world might be the worse without the repeated nudges towards freer trade. The very least that the summit meeting should achieve is that each of the leaders is made aware once more of how the economy of one country depends on others, and of how prosperity abroad has a bearing on prosperity at home. This year’s economic summit meeting, which will begin in London today, has a number of serious problems to consider. Widespread unemployment in the Western world, the risks of inflation, and the persistently slow economic growth have all been discussed at economicsummit conferences over the last few years. The London meeting will revive these subjects and also must consider the worsening of the Gulf war and the striking of high interest rates in the United States. Bolivia’s recent suspension of its debt payments to foreign banks will be noted as another example of the plight into which less developed countries have slipped in spite of financial support. Because of the election in the United States, the temptation will be there to inject more politics into the economic summit meeting this year. The United States is being criticised for its high interest rates and for its large internal Government deficit. President Reagan will not be prepared to take the blame for the world’s economic ills. He can argue that his domestic goal has been to reduce the deficit and to encourage growth. He cannot claim as much success as he would like; and he can point to fierce opposition at home to his ideas about reducing Federal spending. Like the other leaders, he has to be realistic about political pressures, and more so when he faces the electorate. The United States is likely to lay the blame for trade and economic problems at the doors of Europe and Japan because of their policies that favour protection. American industries, the President can protest with some justice, have had to bear with highly competitive imports and have had little enough chance to retaliate. The economic summit meeting is not in a position to do anything to stop the Gulf war. Perhaps the United States will come under

pressure not to take any military action that might make it more difficult to keep the oil supplies flowing. A hopeful sign would be that the leaders of the seven would find a way of sharing oil to make the best of any shortages in the flow from the Gulf. The recent increase in interest rates in the United States will drain capital from the other countries which would hope to keep or attract the capital for investment in their own economies. Election-year politics in the United States will make any resolution of this problem unlikely. After the first shock about Bolivia, a calmer view has prevailed, and it is accepted that Bolivia is not in the bigger league of debtor countries that includes Argentina, Brazil, and Mexico. The fear remains that Bolivia’s suspension of debt payments will set a trend. Although none of the three problems by itself would seem to lead to disaster, one of the troubling questions is whether the three coming together could blend into a serious mess for the Western world. The London economic summit will have done well if it produces a common understanding and determination to prevent, by combined efforts, a crisis brought about by the concurrence of the three problems and by their addition to the persistent underlay of inflation, low growth, and protectionism. The leaders will not have much to be cheerful about. The surge of optimism about the American economy has not dissipated entirely, but it has diminished. The American economy was growing at the rate of about 7 per cent in the first half of this year. It is expected to slow to 4 per cent to 5 per cent in the second half of the year and to slow even further to 3 per cent in the first half of next year. Although this is still sound growth, it is certainly not enough to be the engine for the rest of the world’s economy. Growth rates elsewhere are generally expected to be more modest. The strong Australian economy and the low New Zealand rate of inflation should help New Zealand’s exports of manufactures. The demand for primary products in other markets will not be strong. Within New Zealand, the restraints on the financial sector may have a dampening effect on the economy. A slight upturn in the New Zealand economy may be passing its peak. One of the characteristics of the behaviour of our economy has been the cycles in which booming times have coincided with election years. Because the peak may have already been passed, the cycle may have changed. Retailers have seen the upturn; manufacturers have felt the demand. If the mini-boom ends now, many others will feel that they missed the peak altogether. Many other countries are in the same boat, for the same reasons; most have missed the boat. Success in the London meeting and a favourable turn in world trade would benefit all who are economically ready to ride on an economic upswing.