The G20 summit, opening tomorrow in London and comprising the leaders of the world’s leading economies, is being held amidst a rather complicated economic situation. Trade between countries is falling and markets are shrinking. The USA – the world’s leading economy – is experiencing a deep crisis. This year it will result in a reduction of the country’s GDP by over 2%. Forecasts for Eurozone dynamics are similar.
Russia also expects to see a fall in its GDP. In fact the only exception among the largest economies of the world is China. However, even its development dynamics are incapable of compensating other countries’ losses. Consequently, the active phase of the crisis is still being felt, with everyone trying to guess when it will reach its peak. Much will depend on the G20’s decisions, especially how long the peak phase will last and the tempo of the return to normality.
Recently, the influential Financial Times newspaper leaked information that the organizers of the G20 had, as the paper claimed, split the participants into two groups. On the A-list are the countries playing an important role in ending the crisis and thus in defining the post-crisis economic and political architecture of the world. On the B-list the authors of the document place countries wielding less clout. The (let me stress again) unofficial document puts South Africa on the A-list of key countries, while Russia and Mexico are relegated to the B-list. This is a most alarming development. If we really do get shoved to the periphery of discussion and decision-making, there will be no high-value, high-impact talks at the G20 meeting.
Take protectionism, for example. Let me remind you that the first G20 meeting, last November, spoke strongly against it. But take a look at the anti-crisis measures of the European Union — there is no hiding the fact they contain a measure of protectionism. We see it in the French auto industry and in the whole European agricultural sector. Protectionism is also easily detectable in the “Obama Plan”, from the “Buy American” slogan to the massive subsidies to domestic producers. Equally, the United States intends to issue treasury bonds to prop up its ailing budget. But that move will suck out long-term liquidity so desperately needed by other sovereign economies. The Russian anti-crisis program also has its share of protectionism, especially regarding the domestic auto industry. Now appears to be the time for the G20 to place reasonable curbs on this policy in such a way as to protect interests “at home” but still not hurt others.
One more compromise will have to be found. I have in mind the reform of the International Monetary Fund. Our proposals were far-reaching, linked to the post-crisis era. But now, after a series of meetings of finance ministers and working groups, it looks like the West is not nurturing any serious IMF reforms. On the contrary, they envisage expanding its authority, swamping it with cash and only minor cosmetic changes to the voting procedure. Where are the limits for compromise here?
And finally, Russia has repeatedly spoken of the need for a global reserve currency. Until recently we did not get much support on the issue. But recent statements by the Chinese central bank indicate that Beijing may be ready to support the idea.
It could be that hurrying in a new currency in the midst of the existing uncertainty is not a wise thing to do. Especially as it is not clear who would be able to replace the dollar. But when and how will the G20 deal with this? This is a question much in need of an answer.
No less important is the need to tackle the problems clogging up sovereign economies. We expect the G20 to adopt specific measures to balance the international exchange rate system, to restore financial stability, and to cut deficits to bring them to within some acceptable levels.
As a derivative of this is assistance to its national financial systems and regulation of international credit. What is needed is to return trust to this sector of the economy so that the world banks can start to give credit to one another and interest rates will soon fall. It is necessary to determine worldwide modern standards for the global financial system. The existing standards, as we have seen, are inadequate in these new times. An enormous, and in essence spontaneous, market of derivatives has emerged in the world, as have other financial instruments, which regulators cannot keep track of. Either something in their place needs to be created, or a common denominator needs to be found for them. But at the same time we should not go too far with regulation, since these instruments are necessary to business; thanks to them corporations can obtain credit to grow.
It is clear that the G20 meeting in London has an opportunity to start a new phase of development of the world economy. I would even go so far as to say that the G20 must take this opportunity. But is it wise to solve all these questions while pushing Russia aside? Or perhaps for some economies of developed countries Russia looks like a modern-day King Lear, who has lost at home, and is now looking to lands afar to have its say, but no one finds it necessary to listen? No, and no. The last decision taken by our government – on forming an anti-crisis budget for 2009 – is based on common sense and world practice. It is founded on financial support of domestic consumption, but also on saving some funds for the possible second, more difficult, wave of this Tsunami — to support those who find themselves in dire straits — with unemployment and child-support benefits and pensions. Then this money will return back to the market. As trade comes back to life industrial and agricultural products will be called for. This sensible counterbalancing act has won out over the very seriously lobbied ideas of boundless support for manufacturers. Not all are to be supported, just selected companies. But even sensible criteria of selection of companies to be supported provide no assurances against mistakes being made.
Russia chose the quickest route to success. It is true that today our economy, which was the world’s tenth in size prior to the crisis, is in trouble. Nevertheless our potential is good, in terms of both resource and human capital. Consequently, they will have to count us in and consider our input.
If anyone does try to downgrade Russia to the second tier, the main thing will be to stay calm. I do not rule out that publication of this compromising information in the Financial Times was anything but some kind of psychological attack, with the intention of making people nervy and undermining our decisive mood. However, it should not prevent the Russian delegation from continuing important negotiations, firmly expressing Russia’s point of view, and participating in tactical and strategic unions. We have allies. These are for sure the BRIC countries, whose large developing economies may possibly help everybody out of the crisis.
And so we choose not to respond to these below-the-belt jabs, continuing to pursue our chosen strategy. There will be a time for analyzing the decisions of the G20 summit. This is a very important moment for our country, indeed, a moment of truth, which will forge alliances and no doubt cause “mismarriages” for the short or even long term in Russia’s external and internal policies.