By Tom Barkley
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- World Bank President Robert Zoellick called Monday for the Group of Seven industrialized nations to be expanded to include major developing countries, saying the current world leadership structure is ill-equipped to deal with global crises.
Laying out a broad vision for a "new multilateralism," Zoellick pushed for greater cooperation in everything from financial and economic issues to energy and trade.
"Our New Multilateralism must build toward a sense of shared responsibility for the health of the global political economy," he said in prepared remarks for a speech to the Peterson Institute for International Economics. "This means - chiefly and critically - that it must involve those with a major stake in that economy, those willing to share in the responsibilities along with the benefits of maintaining it."
Speaking in the run-up to the G7 summit and fall meetings of the World Bank and International Monetary Fund later in the week, Zoellick said the G7 has put a priority on "ceremony over policy."
"The G7 is not working. We need a better group for a different time," he said, adding that the G20 is too unwieldy.
Zoellick argued the G7 should be doubled in size to include rising powers like China, Russia, Saudi Arabia, Brazil, India, Mexico and South Africa. Along with the G7 countries of the U.S., U.K., France, Germany, Italy, Japan and Canada, the new group would account for over 70% of the world's gross domestic product, 62% of its energy production, as well as the biggest greenhouse gas emitters and donors.
"Ours must be globalization where both the opportunities and the responsibilities are more widely shared," he said. "Without that, we may design a new architecture but it will be a house of cards."
But instead of just a G14, the new "steering group" would have a more flexible makeup and coordinate more actively with public and private institutions, he said.
"We need a Facebook for multilateral economic diplomacy," Zoellick said, referring to the online social networking site.
Similarly, the Financial Stability Forum, which has been tasked with coming up with global responses to the financial crisis, is too centered around advanced economies, he said.
"Whether through an expanded FSF, a stronger FSF-IMF linkage, or the Steering Group, these financial supervisory issues will need to be addressed in a broader multilateral context," said Zoellick.
Lending his support to the idea of elevating the IMF's role as an early warning system focused on crisis prevention, Zoellick said the fund should also get more involved in helping more developing countries move toward more flexible currency policies.
"The IMF, backed by the Steering Group, can offer more options, including pegs linked to currency baskets or commodities," he said. "Over time, we need to prepare for an international finance system with multiple reserve currencies, with others connected by various pegs."
Looking ahead to the next U.S. administration, he said the next president will have to move beyond "the fire-fight of financial stabilization" to address the "economic aftermath."
Zoellick, whose name has been mentioned in some media reports as a possible Treasury secretary pick if Republican Sen. John McCain wins the Nov. 4 vote, said the next president needs to work with the international community in overhauling its "failed" regulatory structure.
"Just as the crisis has been international because of interconnectedness, the reforms will need to be multilateral," he said.
While developing countries have so far weathered the financial turmoil relatively well, the bank failures and freezing up of credit markets last month could prove to be the "tipping point" for many of them, said Zoellick.
Following a record average of 7.9% GDP growth last year, developing countries could still register an "impressive" 6.6% this year, he said.
But he warned that "the stark reality is that developing countries must prepare for a drop in trade, capital flows, remittances, and domestic investment, as well as a slowdown in growth."
He urged developing countries with solid fiscal and balance of payment positions to use consumption and investment to boost demand, but said others may need help from the IMF and developing banks.
"For some larger countries under threat, the Steering Group and friendly countries should act in concert with the Fund and the Banks to offer support linked to policy reforms that will return the country to sustainable growth," he said.
Calling energy markets a "mess," Zoellick urged energy producers and consumers to make a "global bargain" to find a right balance between supply and demand, and to take into account global warming.
"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," he said.
Noting that the Doha round of global trade talks has "hit the rocks," Zoellick also called for a more cooperative environment on the trade front, with a focus on trade facilitation.
The "new multilateralism" must also give equal weight to development issues, he said, "otherwise the world would remain an unstable place."
For the World Bank's part, Zoellick announced the creation of a commission led by former Mexican President Ernesto Zedillo to make recommendations on modernizing the institution.
The bank needs to "operate more dynamically, effectively, efficiently, and legitimately in a transformed global political economy," said Zoellick.
-By Tom Barkley, Dow Jones Newswires; 202-862-9255; email@example.com
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(END) Dow Jones Newswires
October 06, 2008 12:15 ET (16:15 GMT)
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