Economic Summit Takes On a Political Personality

WASHINGTON — President Clinton and the leaders of six major allies will converge on Denver today for what used to be the annual economic summit of the world’s seven largest industrial democracies. This year, the conference will be different on two counts:

First, Russia, represented by President Boris N. Yeltsin, who in past years has appeared at least briefly, will participate from beginning to end for the first time. The meeting has even been renamed: It is now the Summit of the Eight.

Second, this year’s meeting is not really an economic summit. Instead, Clinton, Yeltsin and the leaders of France, Germany, Canada, Japan, Britain and Italy are expected to focus on thorny foreign-policy dilemmas. The issues include how best to step up their peace-building efforts in Bosnia-Herzegovina and how to deal with the political threats posed by Iran and Iraq.

There is no shortage of economic problems to tackle during the three-day summit, which officially opens Friday. European unemployment rates are mostly in double digits, and even the vaunted Japanese economy is sluggish. But the leaders are sharply split over what to do.

Clinton is expected to press the Europeans to relax laws that sharply limit employers’ ability to fire workers and determine their salaries. Economists say these laws are inhibiting job creation, but France and Germany are resisting changing them for fear of a political backlash.

And all sides are reluctant to break into an open split with Japan, which insists that its new economic deregulation program eventually will spur enough growth to draw in more imports and reduce trade pressures on other countries.

New figures published on Tuesday show that Japan’s global trade surplus soared by 221% over the fiscal year that ended in May.

U.S. officials fear that the Japanese export push will exacerbate protectionist pressures here and abroad.

As a result, Robert D. Hormats, a former State Department official who helped shape more than a dozen earlier summits, fretted that this year’s meeting in mountain-ringed Denver risks being “a mile high and an inch deep”--at least on the economic side.

“There’s not much in the way of initiatives,” Hormats said.

No political breakthroughs are expected either.

The Clinton administration’s major goal will be to persuade the Europeans to move more quickly to create stability in Bosnia--by training and equipping local police forces, for example--so that the country can survive after U.S. and other international forces leave.

The administration also wants to heighten pressure on Muslim, Croatian and Serbian leaders in Bosnia--and on Croatia’s president, Franjo Tudjman--to facilitate the return of all refugees.

And it wants to discuss how to bring to justice the most notorious of the indicted war criminals, most notably the former Bosnian Serb leader, Radovan Karadzic.

Some policymakers consider Karadzic’s continued evasion of arrest to be a major obstacle to long-term peace.

The U.S. position on the Bosnian issues has hardened in recent weeks. Secretary of State Madeleine Albright recently won a battle within Clinton’s Cabinet for taking a more aggressive stance on Bosnia, particularly on the war criminals question.

Yeltsin’s nearly full participation is itself something of an achievement for the Western democracies.

He was invited to the summit partly to demonstrate that the West takes Russia seriously--despite the allies’ intention to expand NATO to include at least three former Soviet satellites in Central Europe--and that it wants to draw Moscow into the mainstream.

Analysts say Yeltsin’s presence may make it more difficult for participants to hammer out a toughly worded statement on Bosnia because Russia traditionally has been a close ally of Serbia.

But here too there are some trade-offs. While the Group of 7 undoubtedly will have to settle for weaker language on such issues to get Yeltsin to sign on to them, whatever statement “The Eight” make is expected to have more credibility with the Serbs.

The eight leaders will also touch on a host of other questions, including endorsing proposals already in the works to shore up banking systems in Third World countries, aiding Africa, combating terrorism and fighting infectious diseases.

And they are expected to warn China--obliquely, to avoid jeopardizing congressional approval of Clinton’s decision to renew normal trade privileges for Beijing--that the West will be watching closely to see that it does not erode civil liberties in Hong Kong.

The shift away from tackling broad-scale economic issues caps a long-evolving change in the annual summits, which were first held in France in 1975.

During most of the first dozen years, the leaders used the annual sessions to help coordinate their economic policies, often fashioning grand accords--on budget policies, exchange rates and even global energy policies--that frequently fell apart a few months later.

For years, the United States was the other allies’ favorite target: The U.S. budget deficit was too large, the U.S. dollar was too high--or too low. And America’s high inflation and high unemployment seemed to threaten the entire world.

This year, there is little to criticize in the United States’ economic performance. Inflation is at its slowest pace in a generation. The jobless rate is below economists’ wildest dreams. And the U.S. budget deficit is a shadow of its former self.

Although many economists would argue that the Clinton administration had little to do with the U.S. turnaround, which they say has resulted primarily from longer-term adjustments by workers and businesses, the president and his advisors have not been reluctant to claim credit.

Today, the Washington-bashing that characterized previous summits has been “totally altered,” Treasury Secretary Robert E. Rubin said.

Still, not everyone is happy about the low-key approach the administration appears to be taking on the economic front.

Alan Stoga, an international economics specialist, said Washington should be doing more than merely touting the U.S. success. He said Clinton should be aggressively pressing the other countries, particularly France, to free up their economies rather than succumb to voter pressure to keep their labor laws and social programs intact.

Times staff writer Jonathan Peterson contributed to this report.