Russia to Play Supporting Role at G20 Summit

When the 20 largest industrialized countries meet in Pittsburgh on Friday to discuss a new world financial architecture, Russia will likely have to play a supporting role.

President Dmitry Medvedev will join the rest of the G20 leaders for the second time since the onslaught of the global financial crisis with an aim to create a unified regulatory structure and rebalance the world economy.

The United States, the event’s host, is expected to unveil a framework agenda that would call for major net exporters, such as China, Japan and Germany, to increase their consumption and urge net importers, like the United States, to boost savings.

“The world will face anemic growth if adjustments in one part of the global economy are not matched by offsetting adjustments in other parts,” said the framework document, a copy of which was obtained by Reuters.

Such a model would not drastically influence Russia, as the world’s largest oil exporter still needs to restructure its economy to play a more decisive role in global financial processes, said Mikhail Golovnin, head of the Center for Globalization and Integration Problems, a think tank.

“While Russia’s economy is in the top 10 in terms of purchasing-power parity, it does not play a key role on the world stage,” he said. “Russia is an important regional economic power because it sells natural resources, but it is far from a position of global leadership in industrial development compared with China and India.”

In 2008, the World Bank ranked Russia’s gross domestic product sixth in the world according to purchasing-power parity, just below that of Germany.

The reform of the International Monetary Fund was a central issue during the G20 summit in London in April, and Russia will raise the issue again in Pittsburgh, presidential aide Arkady Dvorkovich said last week.

“We haven’t yet seen significant progress in the reform of international financial organizations — their resources have been increased but there has been no reform,” he said. “We’re not satisfied with this, and the president will speak about it.”

The government has been angling to increase its influence within the organization. In August, it bought $6.9 billion worth of Special Drawing Rights, the fund’s unit of account, after the London summit agreed on a $250 billion SDR issue. But even so, Russia still only has a 2.74 percent stake in the organization.

In June, the U.S. Congress approved a package of measures that would see increased funding for the IMF, greater representation for emerging markets, and increased participation of low-income countries.

Even an increase in the voting share, or quota, will not allow developing countries to take the lead in influencing the world’s financial policies, Golovnin said.

“There are discussions underway, that the quota for emerging economies may be boosted up to 50 percent, however it has not yet been decided,” he said. “Besides, the blocking stake owned by the U.S. in the IMF is slightly more than 17 percent, and Washington is unlikely to cede supremacy to the developing countries.”

Nevertheless, the fact that such discussion is under way is good, as the role of emerging markets in the world economy has increased in recent years, he said. But developing countries are too disengaged to act in a cohesive way, he added.

Protectionism was one of the most crucial problems that the G20 countries urged to tackle back in April, and Russia has been more or less following the framework of the anti-protectionism commitments it took on in the previous summits, said Yevgeny Nadorshin, chief economist at Trust National Bank.

“While Russia did not put a curb on imports, a hike in customs duties for imported cars and some of the activities by Russian sanitation authorities on imports from the CIS countries may be looked down upon by foreign investors,” he said. “Although, these measures could be motivated by different, noneconomic reasons, they still could be regarded as protectionist.”

Russia increased import duties for cars older than 5 years by 60 percent in January, despite protests raging in Vladivostok in December, where car imports from Japan make up a large share of local business. The government’s health and agriculture watchdogs started “milk wars” with Belarus and Lithuania in June and August, respectively, temporarily blocking imports of dairy products from the countries.

But although Russia has kept within the spirit of the G20 agreement, it will be unlikely to sign on to any new anti-protectionism deal.

“Most countries used protectionism during the crisis, but preferred not to accentuate that,” Golovnin said. “However, clamping down on protectionism won’t go beyond rhetoric in Pittsburgh or in the meetings yet to come.”

During the London summit, world leaders agreed that banks must raise more capital once the financial crisis is over and that “living wills” should be drawn up for complex financial institutions to plan for their unwinding in case that ever becomes necessary. The world leaders also agreed that banks should be required to retain some portion of the loans they repackage and sell as asset-backed securities.

“This time Russia will stress the necessity to implement these regulatory measures already agreed on during the London summit,” said Alexander Rahr, director of the German-based Russia/Eurasia Program.

“Russia, however, is unlikely to raise the question of a new world reserve currency,” he said. “Dmitry Medvedev clearly understands that the majority of world leaders aren’t yet particularly interested in this.”

Dvorkovich said last week that the leaders “might not have enough time to discuss the reserve currency” at the G20 summit.