G8's dominance threatened as developing nations emerge

Rome: Leaders of developing countries confronted advanced nations with a demand for a greater role in the management of the global economy, signalling the drift in power away from the financially distressed West.

Five countries with almost half the world's population - China, India, Brazil, Mexico and South Africa - challenged the hegemony of the US dollar, balked at the industrial world's strategy for fighting climate change and sought more clout in global markets and institutions.

The encounter in L'Aquila, Italy at the annual Group of Eight summit dramatised the ascendance of emerging nations - led by China - as the worst economic calamity since the Second World War batters the US and its European allies.

"Everyone was of the opinion that the G8 isn't any longer the most ideal structure for dealing with the governance of the world economy," Italian Prime Minister Silvio Berlusconi told reporters after chairing the session.

Leaders of the G5 - representing 3 billion people with gross domestic product of $7 trillion (Dh25.69 trillion) - appeared as a united front for a fifth time at the summit of the G8, the advanced world's forum founded in 1975.

"What is happening here is simply the acknowledgment of a reality," Angel Gurria, secretary-general of the Organisation for Economic Cooperation and Development, said in a Bloomberg Television interview. "Be it the fight against poverty, climate change, trade - whatever you want that is global in nature - you need those large emerging economies."

The eight - the US, Japan, Germany, Britain, France, Italy and Canada, along with Russia, a member since 1998 - unite 880 million people with combined GDP of $32 trillion.

Russia, which has joined Brazil, India and China in the Bric bloc, views the G-8 as a forum for "brainstorming", said Sergei Prikhodko, an aide to President Dmitry Medvedev. "It's too early to talk about burying the G8."

The three-day summit ended with a pledge to spend at least $15 billion over three years to increase food production in the developing world, with the goal of cutting the number of malnourished people from about 1 billion.

The G5 took aim at the advanced economies' call for a 50 per cent cut in greenhouse-gas emissions by 2050, saying the policy would suppress the economic growth needed to lift millions out of poverty. No target can be set until world climate talks wrap up in December, they said, insisting on money and technology to help clean up the atmosphere.

"While we don't expect to solve this problem in one meeting or one summit, I believe we've made some important strides," President Barack Obama said.

The contrast was highlighted July 7 when the International Monetary Fund said developing countries are leading the way out of the economic morass spawned by the industrial world.

Emerging economies led by China will expand 4.7 per cent next year, the IMF said, up from an April prediction of 4 per cent. The Washington-based lender forecast growth of 0.6 per cent in the advanced economies, up from expectations of stagnation.

China is "better situated to deal with this crisis," billionaire investor George Soros said in a Bloomberg Radio interview July 7. "The Chinese in my opinion are going to gain in power and influence in a way that people currently don't recognise."

In a statement in L'Aquila, the G5 warned the industrial world against backsliding on aid commitments and sought "a new global governance," including better representation in the IMF and United Nations.

After parallel summits July 8, the G8 and G5 met to work out a statement to try at least to paper over the diverging worldviews.

Central to their dispute is the status of the dollar, its role as the world's dominant reserve currency under threat from the $2.3 trillion in debt run up by the US since the start of 2008 to stem the financial crisis.

The G5 - mainly China - held around $1 trillion in US Treasury debt in April, giving them leverage over decisions made in Washington.

Chinese State Councilor Dai Bingguo, who filled in President Hu Jintao, endorsed the idea of a "diversified and rational international reserve currency regime," according to Foreign Ministry spokesman Ma Zhaoxu.