G20 to discuss economic reform
2013-02-11 16:03
Moscow - Group of 20 policymakers have an ideal chance in
Moscow this week to ponder whether monetary policy largesse will blunt their
will to carry out the economic reforms needed to put global growth on a
sustainable footing.
On their drive from the airport to the city centre, down
highways clogged with luxury cars, it may dawn on finance ministers and central
bankers that Russia, this year's G20 host, got there first.
Some will check-in to the five-star Ritz-Carlton hotel
near the Manezh, the former 19th-century cavalry stable by the Kremlin walls
where they meet this weekend. But convenience comes at a price: Almost $17 000 a
night for a luxury suite.
The world's largest oil producer has, through much of the
Vladimir Putin era, been minting money as its central bank bought up hundreds
of billions of export petrodollars, and the government spent its way out of the
2009 slump.
But the side-effects - political complacency, declining
competitiveness and a misallocation of capital towards conspicuous consumption
and prestige projects - increasingly outweigh the benefits to Russia's $2.1tn
economy.
Some economists say Russia's story could foretell the
outcome of ultra-loose monetary policy in the US, Britain, Japan and symbolised
by European Central Bank President Mario Draghi's vow last July to do
"whatever it takes" to see the euro through its debt crisis.
"Russia has oil; Europe has Draghi," Tim Ash,
the London-based head of emerging markets research at Standard Bank, said on a
recent trip to Moscow. "Europe is catching up to all the problems that
Russia has done nothing about for the past decade."
Others say that may be stretching the point but there are
certainly signs that the zeal for major economic and regulatory reforms in
Europe has faded somewhat since Draghi took the sting out of the debt crisis.
Currency wars
The G20 accounts for 90% of the world's economy and
two-thirds of its population. Russia has taken the helm this year as the group
has split between borrowers seeking to grow out of a debt trap and surplus
countries keener on austerity.
Gone is the shared sense of purpose that embodied the G20
summit in London of 2009, which created a huge financial backstop to stem the
crisis that resulted from the collapse of Wall Street investment bank Lehman
Brothers.
"The G20 has really struggled in the past couple of
years after its really great 2008 and 2009," Jim O'Neill, the outgoing
chairperson of Goldman Sachs Asset Management and leading emerging markets
economist, told Reuters.
"It's already desperately searching for an
identity."
Russia, holder of the world's fourth-largest gold and
foreign exchange reserves, also finds itself on the barricades in an as yet
merely rhetorical "currency war" after its central bank accused
Japan's new government of protectionist monetary policy.
But, G20 sources and economists say, officials are likely
to tone down their rhetoric over competitive currency devaluations.
"I don't see how anybody can complain. Washington is
keeping quiet because that's what it has done for the past 30 years," said
O'Neill.
Supply vs demand
For its G20 presidency, Moscow has drawn up an agenda
focusing on jobs and investment, improved financial regulation and deficit
reduction that is enthusiastically backed by the International Monetary Fund
and World Bank.
But in a world suffering a dearth of demand, there is
likely to be pushback, again led by the US, against Russia's push for
"binding and realistic" goals to cut borrowing.
A target set at the G20's Toronto summit in 2010 to halve
budget deficits expires this year, and one G20 source told Reuters there could
be heated debate as the eurozone's dominant economy, Germany, calls for new
deficit targets to be set.
Here, at least, Russia can show some leadership by
pointing to its own balanced budget, and its adoption last year of a so-called
fiscal rule intended to reduce the dependence of its public finances on oil and
gas revenues.
"Russia's agenda reflects their own policy preoccupations.
To the extent that it is relevant to a broader global forum, that will be a
fluke," said Christopher Granville, managing director of Trusted Sources,
an emerging markets consultancy.
"But it's not an agenda that's way off in outer
space."
Policymakers will hope to set aside friction between
Russia and the West over trade and human rights during the build-up to this
September's G20 summit in St Petersburg, given the forum's focus on economic
issues.
Russia, a country of more than 140 million people, says
it is up to the task of leading the G20, not least thanks to its experience as
half of the “G2” that once dominated global diplomacy during the Cold War.
"It's used to thinking kind of big," said
Russia's top financial diplomat, summit “Sherpa” Ksenia Yudayeva.
But things may be trickier next year, part two of a
double-header, when Russia chairs the G8. Moscow is the odd one out in what
Granville calls "a group of like-minded Western countries with Japan as an
honorary member".
Putin, elected for a third term as president last March
after four years as prime minister, has made international summits and sporting
events an important part of his development agenda for Russia.
He will host the G8 summit in the summer of 2014 in
Sochi, the venue of the next Winter Olympics, and hosts the World Cup soccer
finals in 2018.
Russia expects to spend $50bn on preparing for the Sochi
Games, a sum that would make it the most expensive Olympics. That is progress
at a high price.
