G20 London Summit: Moscow has put forward fresh proposals to recalibrate the international financial system
Andrey Bokarev, a senior government official at the Russian Ministry of Finance and the country’s G20 deputy adviser, spoke to Russia Now with comments on Moscow initiatives for the upcoming summit in London, starting April 2. According to Bokarev, a new global financial structure is needed.
Briefly, the Russian proposals include a co-ordinated macroeconomic policy, delineated support to national economies, immediate reforms of the regulatory system and international financial institutions, defining global standards and discussion of possible changes in the monetary system.
A global Maastricht
First, the Russian Finance Ministry believes G20 nations should agree on co-ordinated macroeconomic and fiscal policies. This should be similar to the Maastricht Treaty, signed in the Netherlands in 1992 to create the European Union. Under the Treaty, E.U. member states’ macroeconomic indicators must be in line with certain criteria; for example, public debt may not exceed 60 percent of GDP.
“In our opinion, the agreements (both Maastricht and Russia’s G20 proposals) are required to provide the basis for countries to stick to agreed upon benchmarks--for example, fiscal deficit, public debt and inflation,” said Andrey Bokarev, a deputy director at the Russian Ministry of Finance and deputy sherpa at the G8.
The next major step would be determining a body to monitor each country’s compliance with the above treaties. The Russian government suggested this function should be assumed by either the International Monetary Fund (IMF) or a new institution.
The G20 leaders could discuss various proposals concerning supervisory function, for example, imposing sanctions on countries which do not comply with the adopted benchmarks. It is all the more important to determine the function of this mechanism given that it has not proved completely efficient in the European Union: there were some precedents of member states breaking the limit of the approved fiscal deficit or inflation rate, and although the “offenders” were given a notice, no actions were actually taken.
Where support ends and protectionism begins
In the context of the global financial downturn, the second most sensitive and significant issue raised by the Russian delegation is supporting national economies. Nowadays, you can hardly find a country that has not launched a stimulus program to support domestic producers, banking and financial systems.
Andrey Bokarev pointed out that Russia has been implementing its own recovery plan, acknowledging the urgency of the situation, yet the Russian party is concerned excessive protectionism could lead to a considerable bias.
It would therefore be advisable to adjust such “support” to the size of a given economy.
The crisis is not going to last forever; when the economy is back to normal, such measures could pose a major threat to national economic and financial stability.
Global regulatory and reporting standards
The crisis has shown that market regulatory reforms and new international reporting standards should be high on the agenda.
Russia advocates improving such standards, and such ideas have been under consideration for a while: the last initiative was proposed by the Italian delegation within the framework of the financial G7 in Rome last February, and has already been considered by international organizations.
The idea behind this Global Standard is to bring together all principal rules and regulations, primarily concerning disclosures, governing different organizations at the national level. New approaches to regulation should be developed. These days, it is not unusual for different international regulatory institutions to use methods based on totally opposing principles.
Russia suggested putting disclosures of business activities, instruments and possible risks on the agenda. Data should be made available to professional and ordinary investors alike. The former should be well aware of corporate structures and management reputations.
International currency concerns
Naturally, summit participants will address the issue of reforming the monetary and financial system in terms of extending the list of currencies, i.e. launching new reserve and regional currencies.
Russia has repeatedly supported the idea of extending the list of currencies which could be used for international payments, said Bokarev. This question will definitely be discussed in detail with G20 colleagues, IMF experts and other international financial organizations.
Further IMF reforms
Finally, Russia is going to raise the question of IMF reform. Changes in the IMF quota system introduced a year ago have hardly yielded meaningful results, said Bokarev. As before, U.S. and E.U. representatives are able to pass any Fund resolution. Emerging markets need more of a voice in the system.
Bokarev is convinced IMF reform “should be furthered through shifting more weight to developing countries.”
Furthermore, the Fund has found itself in deep waters due to the global financial downturn. It is simply too short of money to bail out all victims of the crisis--some nations even contemplate bailing out the IMF. In particular, Japan has pledged $100 billion as immediate relief for countries suffering from the crisis.
“As far as Russia is concerned, any IMF help requests will be given due consideration,” assured Bokarev. Russia has been lending financial support to its neighbors, in addition to the aid the country already provides the poorest countries under the World Bank, G8 programs and other initiatives.
Moscow will keep its international aid promises
Russia remains committed to helping poverty-stricken nations. Its overall commitment of $400-450 billion, as agreed with G8 Finance and the World Bank, will not be reduced. Last year, the country provided $145 millon for global healthcare development, following a $110 million input the year before. By 2010, Russia will have contributed a total of $217 million to the Global Fund to Fight AIDS, Tuberculosis and Malaria in order to cover costs associated with the Fund’s projects in Russia. About half this amount has already been allocated. A program proposed by Moscow in 2006 is underway for developing an AIDS vaccine, and the bulk of the budget for this to be spent in Russia.
The Russian government has decided to set up disease response teams based on institutes and branches of the Federal Service for Supervision of Consumer Protection and Welfare. The teams will work to prevent the spread of infectious diseases in the aftermath of natural disasters in Southeast Asia, Central and South Asia, Eastern Europe and the CIS and, possibly, in Africa. They will thus form an epidemiological equivalent to the emergency response teams under the Russian Ministry for Emergency Situations.
Over $50 million will be spent on supporting programs for improving basic education in Africa, Southeast and Central Asia. A financial literacy program has been launched, targeting, among others, the poorest countries in the world.
Russia has contributed another $30 million to the Global Village Energy Partnership program, an initiative for alleviating energy poverty. This is expected to produce its first results by the end of 2010. The plan is to construct mini power and hydro-electric plants and transmission lines in rural Africa, in areas where people have never even heard of the light bulb.
Finally, two billion dollars have been paid towards the Global Partnership Against the Spread of Weapons and Materials of Mass Destruction.
