G7 reform should be accelerated-US Treasury paper

WASHINGTON, July 7 (Reuters) The shape and size of the Group of Seven club of finance officials from the world's top economic powers needs to evolve faster to better reflect the changing global economy, a US Treasury paper today said.

Released by Treasury's International Affairs office as part of its ''occasional'' papers series, it said G7 ''outreach'' to emerging economic powers where officials from the likes of China, India and Brazil have been invited to the sidelines of G7 meetings in recent years could well be institutionalized.

''Outreach to important economies beyond the G7 is here to stay and one can easily foresee a future in which outreach moves beyond ad hoc arrangements toward greater institutionalization,'' Treasury officials Mark Sobel and Louellen Steadman wrote.

Reviewing the success of the informal G7 finance process over the past 30 years, the paper said shifts in global economic clout away from the seven the United States, Japan, Germany, Britain, France, Italy and Canada had increased the urgency for reviewing the scope of the club.

''The ongoing value of extensive informal consultations among key policymakers points not to preservation of the status quo, but to the need for evolution in this process,'' it said.

The G8 political grouping G7 plus Russia holds its annual summit in St Petersburg next week. Leaders from China, India, Brazil, Mexico, South Africa and Kazakhstan have been invited to attend part of the meeting.

The G7 body of finance ministers and central bank chiefs remains just seven, but has routinely invited officials from these emerging powers to its meetings in recent years too.

''The changes achieved thus far to extend consultations to those playing a greater role in the world economy are critical and beginning steps forward,'' Sobel and Stedman wrote.

''But the world is changing faster than the existing process for consultation and cooperation,'' they said. ''Evolution thus needs to accelerate in order to reflect shifting global economic weight, impetus, and financial power, as well as globalization and the dominance of private capital markets.'' ''Change simply must be faced soon by the G7 and the IFI (International Financial Institutions) boards in particular for the international community to retain tools for cooperation that remain central and relevant in the modern global economy.'' As part of the International Monetary Fund's review of its future operations, the fund has proposed it take on a greater role of economic and financial surveillance and has recently started multilateral consultations with selected groups of key countries on pressing global economic problems.

The Treasury paper said the complex and geographically diverse problem of growing imbalances in international trade and financial flows meant the G7 needed to look beyond its borders for agreements on solutions.

Although it acknowledged the question of who should be included in heavyweight discussions on the world economy was a ''thorny'' one, it said: ''Addressing global imbalances requires engaging heavily with new actors outside the G7.'' As a way of illustrating the shifting weight of global economy power, the paper showed that when adjusted for differing currency values the G7's share of global gross domestic product declined to 41.9 percent last year from 48.9 percent in 1985.

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