G7 Nations to Focus on Currencies, Hedge Funds

ESSEN, Germany - Finance ministers and central bankers from the world's seven richest nations began gathering Friday for a two-day meeting to focus on foreign exchange issues, hedge funds, energy and education.

While initial talk ahead of the meeting focused on European concerns that the Japanese yen, a driver of economic growth in Asia, has been weakening, a wider examination of foreign exchange rates and their effect on economies was likely.

German Finance Minister Peer Steinbrueck and his Chinese counterpart Jin Renqing talked Friday about foreign exchange rates ahead of the G-7 meeting, Steinbrueck said.

"We have had a general discussion on foreign exchange rate issues," he told reporters after talks with Jin, but declined to elaborate.

"When I came into office, I think it was in November 2005, I learned two things: Never talk in public about exchange rates and interest rates. And I will continue to do so."

Japanese Finance Minister Koji Omi said Friday in Tokyo that several topics would be addressed, including foreign-exchange issues.

Broad Discussion

"We will discuss global economic issues broadly. Monetary and currency affairs are part of them," he told reporters before leaving for Essen, adding that he would update his peers on his country's economic recovery.

"Our position is that foreign exchange should reflect economic fundamentals and that we won't comment on daily foreign-exchange moves," he said.

The yen's weakness against the euro has caused some concern among EU finance ministers because it makes Japanese goods less expensive than those made by companies in the EU.

Another key issue the finance officials will likely examine is the growth of hedge funds, a significant topic for Germany given their rising influence over companies.

Hedge funds became a political hot potato in Germany in 2005 when a senior Social Democrat politician called for tougher controls, describing them as 'locusts' after hedge fund pressure botched Deutsche Boerse's bid for the London Stock Exchange and forced out the German stock exchange's chief executive.

Germany has made hedge fund issues a de rigeur topic for its EU and G-8 presidencies this year. Steinbrueck has said the country wants G-7 nations and EU countries, along with the U.S. to try and figure out how to pre-empt any risks that speculative hedge funds may pose to the global financial system.

Hedge funds--high-risk, largely unregulated and secretive investment pools--have traditionally been the investment domain of the wealthy but have become popular with pension funds, life insurance companies and small investors looking for high returns.

Hedge Fund Impact

The U.S. Treasury said the ministers would discuss the impact that hedge funds have on the global financial system, including whether increased oversight would help policy makers. But it stressed that the Bush administration believes that market discipline--not more regulation--was the best way to monitor hedge funds.

A Canadian official who spoke on background said efforts to reform the International Monetary Fund would also be on the agenda, with Canadian Financial Minister Jim Flaherty leading the talks.

But officials from France, Britain and Italy told The Associated Press that there has been a lack of urgency in plans for the IMF to broker more solutions to economic balances, a move they said was related to a lack of interest by the U.S.

IMF Managing Director Rodrigo de Rato is expected to update the participants on the reform program's status.

Gordon Brown, Britain's Treasury chief and the likely successor to Prime Minister Tony Blair, will use the meeting to bolster more action on the G-7's promises of more aid for education in developing countries. Last year, Britain alone pledged to spend $15 billion over 10 years to
promote more teaching.

"Faced with the challenge of increasing aid to Africa by $25 billion in the next three years, the finance ministers are looking the other way," said Oliver Buston, the European director of DATA, or Debt Aids Trade Africa. "We are urging ... Steinbrueck to take the lead and persuade his G-7 colleagues to fund proven aid initiatives." Germany, which is president of the Group of Eight, has pledged to keep Africa in focus when it hosts the G-8 summit in Heiligendamm in early June.

The summit will also be used to promote bond markets in emerging-market economies when G-7 members meet with their counterparts from Brazil, China, India, Russia, Mexico and South Africa.