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G7 tinkers with reform

FINANCE ministers and central bankers of the world's seven richest countries approved proposals yesterday for closer monitoring of global markets. But they were making little progress in their goal of creating the "new financial architecture", designed to dampen the market turmoils of recent years.

At their Bonn meeting, G7 officials signed off on the "stability forum" proposed by Hans Tietmeyer, the Bundesbank president. The Tietmeyer plan, drawn up in response to the crisis sweeping through Asia, Russia and Latin America, foresees regular meetings of a group of around 40 of the world's financial supervisory experts.

"The central idea is that existing institutions and organisations work together, and that is why I am proposing the establishment of a worldwide stability forum," he said yesterday. The forum would examine the extent to which existing rules calling for disclosure of information and on minimum standards, were being met.

This would help the International Monetary Fund to examine countries' positions in a more targeted fashion to see if improvement was needed, and also give it guidelines on how to publish the results.

The "stability forum" falls far short, though, of what some European countries, especially Germany and France, were hoping for. Paris and Bonn have been pushing for the creation of a supranational body to "co- ordinate" action against speculators, whereas the US was not prepared to approve anything beyond a "monitoring" role.

This is not the only fault line running through the G7. The US Treasury secretary, Robert Rubin, has sided with Germany's left-leaning Finance Minister, Oskar Lafontaine, in the increasingly acrimonious row over interest rates. The US and Germany are equally alarmed by the economic slowdown in Europe, with both advocating Keynesian methods to boost domestic demand to kick-start growth. But attempts to dictate interest rates, as Mr Lafontaine has done, are strongly resisted by the European Central Bank.

Also on the agenda of yesterday's meeting was the proposal by Britain's Chancellor, Gordon Brown, to write off pounds 50bn of Third World debt.

While ideologically warmer to this suggestion than its predecessors, the new German government continued to have misgivings about suggestions that the donors' largesse should be partly financed by the sale of some of the IMF's gold reserves.