WASHINGTON (Reuters) - The Group of Seven rich nations is no longer effective and should be replaced by a steering group that includes emerging economic powers like China, India and Brazil, World Bank President Robert Zoellick said on Monday.
In a speech ahead of meetings of G7 finance leaders in Washington this weekend, Zoellick said the global financial crisis was a “wake-up call” that required broader cooperation across more countries.
“The G7 is not working,” Zoellick said, referring to the group of rich countries including the United States, Canada, Britain, Germany, France, Italy and Japan. “We need a better group for a different time.”
“The new multilateralism, suiting our times, will need to be a flexible network, not a fixed nor unitary system,” Zoellick said. “It needs to maximize the strengths of interconnecting and overlapping actors and institutions, public and private,” he said.
He said the steering group should include finance ministers from China, India, Brazil, South Africa, Saudi Arabia and Russia. It should not, however, be limited to any set number of countries but should be flexible and evolve with the times.
Zoellick’s comments on reforming the G7 echoed comments he has made about adapting the World Bank to address changing times in which emerging market countries have a greater stake in the global economy.
Zoellick has announced he will form a commission led by former Mexican President Ernesto Zedillo to help modernize the World Bank’s governance structure, long dominated by the United States and Europeans.
For the reforms Zoellick envisions to replace the G7, the group would bring together over 70 percent of the world’s gross domestic product, 56 percent of the world population, 62 percent of global energy production, the world’s major carbon emitters, big donor countries, and the main players in global capital, commodity, and exchange rate markets.
The new system would respect state sovereignty but require a “sense of shared responsibility,” he said.
Zoellick said the group should meet regularly, either in person or via videoconferencing, and may need back up from the World Bank and the International Monetary Fund to identify emerging problems and solutions.
Zoellick, who has served in high-ranking foreign and economic policy posts under three Republican presidents, said the next U.S. president would have to move beyond the firefight of financial stabilization and would need to work with other countries.
“That work is not about America alone. Both candidates have spoken about strengthening the sinews of America’s ties with the world,” he said, referring to the Republican and Democratic presidential contenders, John McCain and Barack Obama. “How the next American president will do this matters.”
Zoellick has won the praise of economic and development leaders in recent months for calling attention to the global food crisis and the danger it posed to developing countries.
He has warned that the “double jeopardy” of higher food and fuel prices and now the financial crisis could be a tipping point for developing countries and could push 100 million people deeper into poverty.
“The stark reality is that developing countries must prepare for a drop in trade, capital flows, remittances, and domestic investment, as well as slowdown in growth,” he said.
Zoellick said the drop in exports and capital flows will affect investments, while a decline in growth and worsening credit conditions, combined with monetary tightening, will trigger business failures and possibly banking emergencies.
“Some countries will slip toward balance of payments crises. As is always the case, the most poor are the most defenseless,” he added.
He said challenging times will require the World Bank and the IMF to step in and act quickly.
“For some larger countries under threat, the steering group and friendly countries should act in concert with the IMF and the banks to offer support linked to policy reforms that will return the country to sustainable growth,” he added.
Zoellick also called for a “global bargain” between energy producers and consumers in which both sides shared plans for expanding supplies, improving efficiency and lessening demand, increasing energy to the poor, and addressing climate change.
“There could be a common interest in managing a price range that reconciles interests while transitioning toward lower carbon growth strategies, a broader portfolio of supplies, and greater international security,” Zoellick said.