SPECIAL REPORT

BEYOND THE SUMMIT

THE GROUP OF SEVEN INVITES THE SOVIET UNION TO ENTER THE GLOBAL ECONOMY

Anthony Wilson-Smith July 29 1991
SPECIAL REPORT

BEYOND THE SUMMIT

THE GROUP OF SEVEN INVITES THE SOVIET UNION TO ENTER THE GLOBAL ECONOMY

Anthony Wilson-Smith July 29 1991

BEYOND THE SUMMIT

SPECIAL REPORT

THE GROUP OF SEVEN INVITES THE SOVIET UNION TO ENTER THE GLOBAL ECONOMY

Inside the heavily guarded confines of London’s 166-year-old Lancaster House, the seven men put aside their public air of careful formality and treated one another as old and familiar acquaintances. During three days of meetings last week, the leaders of the world’s seven largest industrialized countries addressed each other by their first names, slipped handwritten notes back and forth, argued angrily on occasion and sometimes thumped the table vigorously to demonstrate their approval of various remarks. But on the last afternoon of their meetings, the atmosphere, said one observer in the room, became “electric” with the arrival of a special guest: Soviet President Mikhail Gorbachev. Declared British Prime Minister John Major, the chairman of the Group of Seven (G7) economic summit, as he formally introduced Gorbachev to the other leaders: “Gentlemen, this is an historic day.” Responded Gorbachev: “I am very glad to be here.” And following his unprecedented address to the summit leaders, he declared: “This is now a seven-plus-one [meeting]. The ice has broken, and the icebreaker is on its way towards renewal.”

More than anything else in his six years as Soviet leader, those words and Gorbachev’s presence at the meeting signalled that the Cold War between his country and the West has been laid to rest. In the 2lh days before Gorbachev’s arrival, the seven leaders, as well as two representatives of the European Community, Jacques Delors and Ruud Lubbers, outlined a series of economic and political goals for themselves that are among the most ambitious in the 17-year history of such gatherings. They include steps to substantially strengthen the authority of the United Nations, a call to tighten controls over world arms sales, a com-

mitment for leaders to take a personal role in reviving stalled trade talks under the General Agreement on Tariffs and Trade, and an agreement for Canada on control of maritime resources (page 28). As well, President George Bush and Gorbachev announced agreement on a strategic nuclear arms reduction treaty and said that they will formally sign the treaty during a superpower summit in Moscow on July 30 and 31. Declared the Soviet president: “We have moved further away from nuclear war. It is our common victory.” The announcement drew applause.

Focus: But the real focus of attention outside the sumptuous Lancaster House centred on an announcement, by the leaders of the United States, Canada, Britain, France, Germany, Italy and Japan, of a six-point recovery program

for the Soviet Union’s beleaguered economy (page 30). The agreement, which marks the first such joint action by the group, includes an offer to Moscow of a “special relationship” with the International Monetary Fund (IMF), technical assistance in various fields, heightened ties between individual G-7 government ministers and their Soviet counterparts, and annual meetings between the G-7 chairman and the Soviet leadership to discuss reforms. Said Prime Minister Brian Mulroney: “We are saying that we believe in Mr. Gorbachev’s commitment to reform, and we want those reforms to succeed.”

Still, as Gorbachev’s occasionally glum manner at a post-summit news conference appeared to indicate, the support offered by G-7

leaders exists more in symbol than in substance. The aid plan noticeably lacked any offers of financial assistance—despite intense behind-the-scenes lobbying by the Soviets, who warned that their country is on the brink of economic collapse. With many consumer goods now unavailable, some experts estimate that inflation in the Soviet Union is running at more than 100 per cent annually. But economists say that the problem is unlikely to improve until the ruble is made fully convertible to Western currency—a process that the Soviets say would require an additional cash reserve, or stabilization fund, equal to about $15 billion to bolster the currency on international money markets. The G-7 leaders made clear before the meeting that they would reject any such appeal. As well, several leaders, including Mul-

roney, said that any further assistance to the Soviet Union will depend on Gorbachev’s stilluncertain ability to transform his verbal commitments into reality. Acknowledged Gorbachev after the meeting: “We are going through a difficult time.” He added: “We will find our way through this, whether you help us or not.” That belief is clearly not shared by some leaders, who occasionally disagreed sharply as they worked to shape a mutually agreeable aid proposal for Gorbachev. Although much of the final proposal was settled by representatives of the leaders in meetings before the summit, two changes were made during summit discussions. In one setback for Gorbachev, the United States and Japan vetoed a proposal to give the Soviet Union greater access to loans

through the European Bank for Reconstruction and Development (EBRD), which is funded in large part by the G-7 members. But Gorbachev gained in another area with the acceptance of a Canadian proposal that will see the host chairman of each year’s G-7 summit meet with the Soviet leader to discuss economic issues and needs. Some participants, including Japanese Prime Minister TosMki Kaifu, initially opposed the proposal, saying that it would link the Soviet Union too closely with the group. But Mulroney and other leaders argued that it will allow group members to oversee more closely the success of Soviet reform efforts. The other five proposals include:

• A special association with the IMF and the World Bank, giving the Soviets access to expert advice on economic reforms, including

market pricing and control of the money supply.

• Intensified joint efforts by the IMF, the World Bank, the EBRD and the Organization for Economic Co-operation and Development to support Soviet reforms for creating a market economy and attracting foreign investment.

• Technical assistance in energy, converting military facilities to civilian use, improved food distribution, nuclear safety and transportation.

• Improved Soviet trade links with both the West and former partners in Eastern Europe.

• Encouraging finance ministers and other government officials to meet with their Soviet counterparts.

Nearly all of those proposals carry with them a series of unwritten incentives for the

GORBACHEV RECEIVED A LOT OF ADVICE, BUT LITTLE FINANCIAL AID

Soviets. Despite the insistence that there will be no discussion of financial aid to the Soviets in the near future, senior officials with several delegations acknowledged that the freeze will be eased if the Soviets take steps to make their currency convertible (one ruble is now officially valued at the artificially inflated rate of $1.91, while the true value is closer to four cents). As well, U.S. officials hinted that if the Soviets take substantial steps towards encouraging private enterprise and free prices in a market economy, the Americans will drop their opposition to increasing EBRD loans to the Soviets.

For Gorbachev, the G-7’s formal support will clearly provide political cover as he struggles to push through reforms that are likely to be unpopular within the Soviet Union. Said a British official on condition of anonymity: “He can just blame us the first time someone screams when he lets market prices rise to their natural level.” For his part, Gorbachev told summit members that he is prepared to lift price controls on 70 per cent of all consumer items by the end of next year.

Waste: At the same time, G-7 members said that they told Gorbachev that their experts can substantially improve the Soviet economy simply by devising methods to reduce the enormous waste now prevalent across the country. In one example, a study by the Soviet government two years ago showed that almost a third of fruit and vegetables produced are wasted because of spoilage that occurs due to insufficient transportation and storage methods. For his part, German Chancellor Helmut Kohl said that it is “inordinately important” to give Western support to upgrading safety standards at Soviet nuclear power plants in order to prevent future leakage of a reactor, such as occurred at the Chernobyl plant in Soviet Ukraine in 1986. In fact, in the shifting political landscape of the summit, Kohl was the most enthusiastic proponent of increased aid for the Soviets. Another key ally was French President François Mitterrand, who pushed for an increased role for the EBRD and a promise of quick conditional aid for Gorbachev once his reform program is under way.

At the other end of the spectrum was Japan, which opposes almost any increase in aid for the Soviets. Japanese officials insist that any further aid from their country should be tied to Moscow’s willingness to cede control of a chain of small islands that the Soviets seized from Japan at the end of the Second World War. In an interview with Maclean’s last week, Taizo Watanabe, official spokesman for the Japanese foreign ministry, declared: “Until we see a change in Soviet attitudes towards those islands and to Asia in general, it will not be possible for us to take Soviet promises of reform fully seriously.”

In fact, the affiances among leaders often

shifted swiftly, depending upon the approach that each country adopted on different issues. Despite Mulroney’s strong affiance with Bush, Canada broke ranks with the United States on several issues—notably in advocating a larger role for the EBRD in aiding the Soviets and insisting on maintaining economic sanctions against South Africa. At the same time, Canadian officials were visibly distressed by France’s

initial refusal to endorse a plan calling for the G-7 to push for the creation of an international registry of arms transfers. The French, who are major arms exporters, opposed a major role for the G-7, saying that it would undercut UN arms-control efforts. The proposal was finally accepted in a watered-down form, calling for the creation of such a registry, but without any specific mention of the G-7’s playing an institutional role. Officials from several countries also pointed out that the personalities of the participants played a key role in private discussions. Said External Affairs Minister Barbara McDougall: “Personal rapport is crucial here.” Britain’s Major, in contrast to his predecessor as prime minister, Margaret Thatcher, was widely regarded as flexible and conciliatory in his attitudes, and won praise for his work as chairman. Kaifu, who always spoke from notes,

and Mitterrand were the most formal members, and the only two who did not address other leaders by their first names. Gorbachev and Bush, who now address each other as “Mikhail” and “George,” sat side by side during meetings and shared several jokes with each other. And senior Canadian officials said that Mulroney scored points for making full use of the fact that he is the only leader who is fluently bilingual in English and French. He acted as translator for conversations between Bush and Mitterrand, and held lengthy talks with Italian Prime Minister Giulio Andreotti, who also speaks French.

Several leaders and their delegations sometimes caused surprise with their behavior outside the meetings. The most widely discussed figure was Mitterrand, who showed up markedly late for three different sessions. Mitterrand, 74, is renowned for his tardiness, a habit that some American officials maintain is designed to underscore his role as the senior summit leader.

Strike: For their part, the American and Italian delegations also occasionally raised eyebrows. Despite pleas from summit organizers that each leader limit his procession to a maximum of eight cars in order to minimize traffic congestion, Bush travelled with an entourage of 16 automobiles. And Italian sum^ mit efforts nearly came unlt; glued during the first day of 3 meetings: about a dozen junior members of the delega-

y tion locked themselves in a ~ room for about 15 minutes £ and declared themselves to “ be on strike because they had I to work too hard, g Still, such problems quicko ly faded in the face of the most crucial discussions at the meetings. At the summit ■ last year in Houston, the seven members ended with little more than an agreement to disagree on how to deal with Soviet reform efforts. As a result, Germany’s Kohl eventually presented Moscow with his own aid package, while U.S. officials continued to express public skepticism about Gorbachev’s chances for success. This year, representatives of the leaders said that they were determined to avoid such a schism.

At the same time, senior officials from several countries said that they were worried that Gorbachev, who has received sharply contrasting advice from a variety of economic advisers, might arrive with such a vague reform plan that it would leave G-7 members little to work with. In fact, in the past 18 months, no fewer than nine widely differing plans have emerged to save the Soviet economy. And the latest proposai, presented to the summit leaders the

weekend before the summit in a 23-page letter from Gorbachev, appeared disturbingly short on specifics. Gorbachev acknowledged that his country’s crisis can be overcome “only if we make a radical shift towards a market economy” from central control. At the same time, he proposed privatization of about 80 per cent of retail outlets and services, “land reform which would include ownership status” and joint exploitation of Soviet energy resources. But the letter contained few details. That lack of precision drew immediate criticism from Western leaders. U.S. Secretary of State James Baker said that he doubted that “you could get to a

market economy by simply providing assistance to a disintegrating command economy.” Because of those attitudes, Gorbachev arrived at his historic Wednesday afternoon meeting surrounded by an air of both anticipation and some skepticism. But after Major’s introduction, the Soviet leader made a passionate presentation that one observer told Maclean’s-was “almost operatic—a virtuoso performance.” Speaking largely without notes for 80 minutes, Gorbachev directly confronted many of the concerns of the group. He told them that he remains committed to a massive reduction of the Soviet armed forces and arms-

producing factories. But, he added, he cannot do so immediately because “you must understand the social and political problems it causes.” Said one observer: “He put it in a way that other politicians can understand.”

‘Courage’: The G-7 leaders occasionally showed clear sympathy for the challenges that Gorbachev faces. Mulroney told Gorbachev: “The difference between us and you is that we inherited healthy economies and just try to improve them, and you have a disintegrating one which you must build from the ground.” And Bush praised Gorbachev for his “enormous courage in forging ahead” with plans for radical change. Still, Bush cautioned again that any future aid would be contingent on the range and scope of reforms. The air of caution led some observers to suggest that the leaders had rebuffed Gorbachev by giving him a bare minimum of concessions to take back to Moscow. Such accusations clearly annoyed the leaders, including Germany’s Kohl, who declared: “Those who felt that we should open a huge bag of goodies have been wrong from the start.”

Such a suggestion also struck a sensitive chord in Gorbachev, who repeatedly argued that the rest of the world also stands to gain by any improvement in the Soviet economy. He and other leaders said that the fact that the meeting took place at all is proof of how global politics are changing. After the meeting, Gorbachev declared: “We are not even talking about assistance. We are talking about a new quality of co-operation.” If that is the case, last week’s G-7 summit may ultimately mark both the end of a chilly war of superpowers—and the dawn of an era of global political warming.

ANTHONY WILSON-SMITH in London