Russian President Vladimir Putin habitually heralds each official visit to an international meet-up with an article for foreign media. Ahead of the G20 Summit, Mexico’s top El Universal daily has published Mr. Putin’s article, titled The G20 and global economic challenges.
An unprecedented crisis hit the global economy four years ago, sending visible ripples around the entire world and affecting every country to some degree. To meet a challenge of this scale the world’s leading countries had to radically change their approach. For the first time in history, the leaders of the countries that account for almost 90 percent of global GDP showed genuine desire and ability to coordinate economic policy. Most importantly, they prevented the world from taking the dead-end road of trade wars and all-out protectionism, and began putting the international currency and financial system in order.
Thus, the G20, which before 2008 existed only through the format of regular meetings of finance ministers, gained the status of a leading global forum for addressing economic and financial issues.
It was thanks to the G20 that measures were taken at the height of the crisis to increase the capital of all of the multilateral development banks and bolster the IMF’s resource base, thus enabling these institutions to support the countries worst affected by the crisis. The G20 proposed a long-term agenda for reforming the financial regulation system and outlined principles for protecting the rights of consumers of financial services. The G20 leaders’ decision in 2009 to establish the Financial Stability Board as the coordinating body for drafting new rules of the game in the financial sector was without question a significant event.
But the systemic problems are still far from all solved. The effects of the 2008 crisis are still visible today. The imbalances that have built up are evident in budget shortfalls, troubled banks, and a debt-to-GDP ratio in developed countries that has clearly gone beyond reasonable limits. Moreover, recent months have brought us negative trends on the markets and other worrying signals that now have the analysts making very pessimistic forecasts.
These developments are unfolding against a backdrop of change throughout the entire global country. The experts predict that growth in developing markets will outstrip growth in the established developed countries more than 3.5-fold right up until 2017, and more than 2-fold over the 15 years to follow. Not only are the powerhouses of global growth shifting in location, but the geography of goods and financial flows is changing too.
What position does Russia take in this situation? Over recent years, Russia, which is the world’s sixth-biggest economy in terms of purchasing parity power, has strengthened its financial and budget system. We have the third-biggest currency and gold reserves in the world. With a growth rate of 4.3 percent, Russia’s economy is one of the fastest growing big economies in Europe. Unlike in 2008, Russia’s banking system is now much better protected against fluctuations on the global financial market.
Russia is not burdened by dangerously high debt levels. Household debt levels in Russia are considerably lower than that of other countries. Total household debt came to 10.6 percent of GDP as of April 1, 2012, compared to approximately 60 percent of GDP in Germany and France, 87 percent in Spain, and 92 percent in the USA. As for Russia’s public debt, at 9.2 percent of GDP as of May 1, 2012, it is minimal compared to the other countries in the G8, G20, and the BRICS Group. For comparison, public debt is 81 percent of GDP in Germany, 86 percent in France, and 104 percent in the USA. Last year we succeeded to get a deficit-free budget and to even make a small profit of 0.8 percent of GDP, we therefore earned more money than we spent. Russia’s trade surplus stood at $198 billion.
At the same time however, if revenues received due to favourable oil and natural gas market situation are deducted, we will see high budget deficit figures. Such deficit resulting from oil and gas revenues deductions has grown over the years of the crisis to the maximum level which may be allowed.
We are very much aware that we need to speed up the pace of change. We need to do this in order to guarantee sustainable development and reduce our dependence on raw material exports. We are therefore working on radically improving the investment climate, making Russia a globally competitive place to do business, reducing infrastructure bottlenecks, building up our human capital, and modernising the economy in general. At the same time, we are continuing to respect all of our social commitments. These reforms are all a crucial part of the agenda of the Russian authorities at all levels.
This upcoming G20 summit takes place at a time of growing uncertainty. Aside from taking measures to correct the serious financial situation in individual European Union countries, most of the world’s countries also need to strike a reasonable balance between fiscal consolidation and strict budget discipline on the one hand, and job creation, economic growth, and tackling social problems, including maintaining pension system stability on the other hand.
The problems that have emerged in the banking sector and the scale of speculation that has brought down markets show that the global financial architecture is still in need of reform and still contains many internal risks and contradictions. It has yet to gain a firm foundation and be tied to real assets and values. Indeed, recent trends on the financial markets show an ever-growing divergence with the fundamental indicators in the real sector of the economy. This only serves to further fuel the general lack of confidence and instability that, as we know, can easily lead to outbreaks of financial panic.
The need for new steps is evident. Above all, we need to tighten regulation of derivatives trading. We need to ensure consistent implementation of the new Basel III financial regulation that reduces the risk of bubbles arising. I believe it is in our common interest to facilitate the emergence of new reserve currencies and expand their use in global trade and investment. Finally, the G20 must fulfil its commitment to reform the international financial institutions, including the IMF and the World Bank, in particular by moving from talk of increasing the developing countries and ‘new’ economic powers’ role in these institutions’ management to actually taking practical steps in this direction and giving them a greater say in drafting and adopting the major basic decisions.
In this context I want to stress one point in particular. We all know that financial instability inevitably leads to increased trade protectionism. In 2009, global trade fell by 12 percent, the biggest slide in the entire post-World War II period. This was largely because, despite the public statements to the contrary, some countries made extensive de-facto use of tough protectionist measures to protect their own markets. It is time to recognise that governments are on the one hand declaring protectionism unacceptable, but on the other hand are devising ever more sophisticated ways to protect their own economies, disguising protectionist measures as environmental or technical restrictions, for example.
It is time to stop pretending and come to an honest agreement on the acceptable level of protectionist measures that governments can take to protect jobs in times of global crisis. This is particularly important for Russia as our country will join the WTO this year and we intend to take an active part in the discussions on the future rules for global trade. In particular, we will make every effort to break the deadlock in the Doha Round.
All of these various issues will be on the agenda at the summit in Mexico. They will be among our priorities when Russia takes over the presidency in the G20 next year, as will global energy security issues. We realise how important it is to maintain confidence in the G20. Confidence in the organisation will be devalued if our joint decisions remain nothing but lofty declarations, suspended in mid-air, without real implementation and oversight.
It is equally important to ensure that the G20 does not become just another elite club that selfishly looks after its members’ interests alone. The sense and purpose of our work together is to lay down fair rules for sustainable development throughout the entire global economy. This is the line that Russia will offer its partners at the upcoming summit in Los Cabos.