Divided G20 worsens economic situation

The G20 meeting of finance officials, held in Washington on Thursday, reflected the economic and political tensions in the world. The G20 comprising the advanced economies (AEs) and the emerging market economies (EMEs), which came into existence in the wake of the 2008 global financial meltdown, and which includes Russia, is once again facing a critical situation. Indonesian Finance Minister Sri Mulyani Indrawati – Indonesia is the president of G20 this year – told reporters, “This is an extraordinary situation. It’s not business as usual, a very dynamic and challenging one.”

United States’ Treasury Secretary Janet Yellen and Federal Reserve Chairman James Powell walked out of the meeting, protesting the presence of the Russian delegation. Bank of England Governor Andrew Bailey, Canadian Finance Minister Chrystia Freeland and European Central Bank Governor Christine Lagarde also walked out.

China, India, Indonesia, and South Africa are among the countries who did not condemn Russia’s invasion of Ukraine or impose economic sanctions like the Western countries. Indrawati told reporters, “In order for us to recover together…we need more and even stronger cooperation. The G20 is still… the premier forum for all of us to be able to discuss and talk about all the issues.” The Russian finance ministry in a statement issued from Moscow quoted Finance Minister Anton Siluanov saying that dialogue in G20 should not be politicised and the group’s focus should remain on the economy. The Russian statement further said, “Another aspect of the current crisis is the undermining of confidence in the existing international monetary and financial system. The safety of international reserves and the possibility of free trade and financial transactions are no longer guaranteed.”

According to reports, ECB Governor Lagarde asked Russian Deputy Finance Minister Timur Maksimov to convey his government the message that Russia should end the war in Ukraine. New Zealand’s Finance Minister Freeland, who is of Ukrainian descent, tweeted, “This week’s meetings in Washington are about supporting the world economy – Russia’s illegal invasion of Ukraine is a grave threat to the global economy.” International Monetary Fund (IMF) Managing Director Kristalina Georgieva, who is of Bulgarian descent, acknowledged that it is a “difficult moment” for the G20, but she said cooperation will continue in the G20. She said, “There are clearly very, very unsettling facts we have to deal with. But we also recognize how interdependent we are…And it is so obvious that cooperation must and will continue.” In their meeting earlier, Georgieva and Yellen agreed that the crisis in Ukraine should not create two economic groups corresponding to the divisions over the situation in Ukraine.

The economic sanctions that the Western countries led by the United States have imposed on Russia in the wake of Moscow’s invasion of Ukraine are proving to be difficult because they are making the recovery of the global economy from the impact of Covid-19 more difficult than ever. The Europeans, and the Germans in particular, are hugely dependent on Russia oil and natural gas, and it is proving difficult for them to cut off the Russian supplies.

Similarly, the suspension of wheat exports from Russia and Ukraine, especially to Egypt, Lebanon and other Middle Eastern countries has created food shortages as well as fuelled market prices of wheat in these countries. International organisations like the IMF and the World Bank, and groupings like that of G20, have a difficult task in dealing with the situation arising out the conflict between the US and the West on one side and Russia on the other. IMF’s Georgieva was right in emphasizing that cooperation must continue whatever the political differences among the countries. The world economy has indeed become too interdependent to break off from each other.