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2ND LD: G-8 to debate 'code of conduct' for hedge funds.

POTSDAM, Germany, May 18 Kyodo


The Group of Eight finance ministers will debate a ''code of conduct'' by the hedge fund industry as part of efforts to stem volatile market moves by their transactions, German Finance Minister Peer Steinbrueck said Friday.

The finance ministers are also expected to discuss aid for African nations as they plan to meet with representatives of five African countries later in the day.

Prior to a two-day G-8 finance ministers' meeting beginning in the evening, Steinbrueck told reporters that he expects the hedge funds industry to agree on ''a code of conduct'' by the time the G-8 leaders' summit convenes June 6 to 8 in Heiligendamm, Germany.

The German finance minister said the agreement is unlikely to be reached ''within the next 24 hours but in the prospect of next month.'' ''It is part of the agenda at the summit,'' he said.

The finance ministers' talks, hosted by Steinbrueck, will be held at a lake resort near Potsdam in preparation for the G-8 summit next month.

Steinbrueck said the hedge fund industry has also launched efforts to improve market integrity to prevent a potential systemic risk and to contribute to investors' protection.

The G-8 finance ministers are expected to devote considerable time to debating the issue at the request of Germany, which wants its G-8 counterparts to back tighter supervision for hedge funds.

The meeting comes at a time when the balance of assets held by hedge funds has swollen to about $1.5 trillion -- roughly a third of Japan's gross domestic product. There are fears that a huge unilateral hedge fund transaction could trigger volatile market moves and harm otherwise solid global economic growth.

The G-8 will discuss the matter, based on a report from the Financial Stability Forum to be submitted to the eight finance ministers. The forum is a panel of experts headed by Bank of Italy Governor Mario Draghi.

Observers say it would be difficult for the G-8 to reach an agreement on specific new regulations on hedge funds as the eight nations are divided on the issue.

Eurozone members, including Germany, want to enhance control of hedge fund activity through direct monitoring. But the United States, Britain, Canada and Japan prefer indirect monitoring of hedge funds and believe excessive regulations on them would run against the free market economy mechanism.

The ministers from Britain, Canada, France, Germany, Italy, Japan, Russia and the United States are scheduled to kick off their gathering with a working dinner, which involves their counterparts from five African nations -- South Africa, Nigeria, Ghana, Mozambique and Cameroon.

The G-8 finance ministers are expected to discuss topics related to aid to African nations, such as anticorruption measures and likely to agree on ''The Action Plan for Good Financial Governance in Africa'' to support the promotion of good financial governance, including capacity development, working closely with ongoing initiatives of international financial institutions, sources close to the meeting said.

The G-8 also plans to assist African nations that are taking credible action against corruption and help them to increase the effectiveness and efficiency of public finance, the sources said.

In addition, the G-8 ministers are expected to agree on ''The Charter of Responsible Lending,'' under which all donor nations are encouraged to improve transparency of their aid in accordance with internationally shared principles, the sources said.

From Japan, Finance Minister Koji Omi is scheduled to attend the meeting. U.S. Treasury Secretary Henry Paulson will skip the G-8 talks and send his deputy Robert Kimmitt on his behalf.

On the economy, the G-8 is expected to reaffirm solid global economic growth despite recent signs of a U.S. economic slowdown, while maintaining an upbeat outlook.

The G-8 finance ministers are also expected to discuss climate change, energy savings and the fostering of bond markets in emerging economies.

The G-8 is also likely to discuss successful budget consolidation in an effort to meet ballooning social security costs amid their graying societies.

The issue of exchange rates, which usually draws strong media and market attention at any G-7 meeting, is unlikely to become a focal point at the upcoming meeting despite the yen's recent fall against the euro as central bank governors will not take part in the event. The G-7 is the G-8 minus Russia.
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Publication:Japan Policy & Politics
Date:May 21, 2007
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