Nikita Maslennikov, Institute of Contemporary Development “Considering the Agenda for Russia’s Presidency of the G20”

December 1 marked the beginning of Russia’s presidency of the G20 – an informal association of the world’s largest economies, which together account for 90% of global GDP, 80% of international trade and 64% of the planet’s population. The eighth G20 summit is scheduled for September 5-6, 2012 in St. Petersburg (at the Constantine Palace). Over the four plus years of its existence the G20 has become an important instrument in anti-crisis regulation. “Through their coordinated action, in just a short period of time, the participating countries managed to stop the economic slide and tighten supervision over national financial systems. They then began systemic transformation of the international financial and economic architecture to bring it into line with twenty-first century demands and started developing the mechanisms that will give us maximum protection from risks, strengthening mutual trust, and giving the impulse for sustained and balanced global economic development.”1 The G20’s main task for 2013 is to make concerted efforts aimed at stimulating economic growth and creating jobs. This in turn requires investment incentives, trust and transparency in markets, and effective regulation. In essence, this triad can be considered the principal priorities for Russia’s presidency, in consideration of which the traditional issues of the G20 will be discussed: • the state of the global economy and implementing the 2009 framework agreement for strong, sustainable and balanced growth; • facilitating job creation; • reforming the currency and financial regulation and supervision systems; • stability on global energy markets; • stimulating international development; • strengthening multilateral trade; • countering corruption. Furthermore, Russia proposes the inclusion of two new issues in the financial agenda: “financing investment as a basis for economic growth and job creation” and “modernizing national public borrowing and sovereign debt management systems.” Thus, the Russian

1 Address by Vladimir Putin on Russia assuming the G20 presidency presidency will ensure fulfillment of earlier commitments and continuity while at the same time offering an opportunity to qualitatively expand the G20’s agenda. In many areas of its work the G20 has already taken substantial steps which are now producing serious results. Critical to reinforcing these achievements is the coordination and ongoing monitoring of compliance with commitments already undertaken by G20 members (including the growth and jobs action plans coming out of the Cannes and Los Cabos summits). A progress report on this will be presented at the St. Petersburg summit. In 2011, during the French presidency of the G20, the first situation analysis was carried out for states with the largest internal and external imbalances. The severity of some of these imbalances has eased (primarily, the trade balances of the US and China), while for others it has grown more acute. The excessive level of sovereign debt and budget deficits in practically all developed economies continues to substantially inhibit global economic recovery. At the same time, the contribution of the majority of developing countries to the rebalancing of global demand continues to underperform expectations. In this regard, it would be an opportune time to re-launch the process of observing the dynamics of imbalances on the basis of improved reciprocal evaluation mechanisms. It is expected that a report on this topic will be presented to the political leaders at the 2013 summit. Taking inventory of the implementation of agreed decisions and mutual commitments will provide the underpinnings for the St. Petersburg action plan. The participants of the November G20 finance ministers meeting agreed to propose to the upcoming G20 summit specific targets for the debt-to-GDP ratio beyond 2016 and as well as for fiscal consolidation. And given such a scope, the action plan may acquire a perspective that extends into the mid-term horizon. One of the key elements of the 2013 agenda is issues concerning investment financing, generation of long money, invigoration of multilateral development banks and provision of state guarantees. With regard to state guarantees, for example, the development of general recommendations for the G20 on provisional budget obligations is imperative. Also of importance is the general acceptance of the practice of restructuring of various types of debts, as this could lay the foundation for the development of commonly agreed standards for managing sovereign debt. Furthermore, in the upcoming year there are good prospects for developing guiding principles for overcoming the investment crisis in the real sector of the economy. During the period of Russia’s presidency comes the preparation for and adoption of a decision on one of the most difficult tasks of reforming the international currency and financial system. This entails reaching an agreement on the reassessment of the structure of quotas and votes in the IMF on the basis of a new formula for their calculation and distribution reflecting the profound structural changes in the global economy. At issue here is not only securing agreement on the components of the formula (Russia, for example, believes that share of global GDP should be the most important factor) but also ensuring its implementation in the redistribution of votes. No less difficult is the task of pursuing the ratification of amendments to the charter documents of the IMF which would give the green light for the modernization of the corporate governance of the fund.2 Furthermore, the St. Petersburg summit should see completion of the institutionalization of the Financial Stability Board (FSB) and its transformation into a fully self-sufficient international organization. This is a significant step down the path to the creation of modern global financial architecture, as it is within the framework of the this organization that the G20 recommendations are developed for issues concerning the standardization of business practices and competition in the banking, insurance and stock markets, and the regulation of the activities of institutional investors, sovereign funds, rating agencies, OTC-traded financial derivatives, etc. Of no small importance is the fact that raising the status of the FSB will fundamentally expand its capacity for ongoing monitoring of structural reforms in the financial sectors of G20 countries. It is critical that the focus here is placed not so much on compliance with international financial stability parameters as on the resolution of procedural issues – from the institution of Basel III, organization of supervision over national systemically important financial organizations and the implementation of recommendations for risk management in payment systems to the establishment of control over the shadow banking system or, for instance, the assignment of codes for legal entities under the framework of a global identification system. In our view, raising the stature of the FSB3 could set a precedent for G20 efforts to strengthen the potential and expand the capacities of many other specialized formal international organizations and informal associations (partnerships and so on). This, for example, could in turn influence the issues of green growth and stimulation of energy efficiency, transparency of commodity derivative instruments, environmental protection measures, various aspects of food security, etc. At the same time the situation on energy markets requires the coordinated action of all G20 member-states to create a system for managing risks of excessive volatility. In connection with this, it would be logical to expect under the Russian presidency of the G20 a certain overlap

2 The proposals include the following: the reallocation of two of the IMF Executive Board seats currently delegated to European states to developing countries; the establishment of deputy board positions for chairs representing multiple states; the introduction of elections for all members of the Executive Board, etc. 3 It is expected that the organization will be created under Swiss law; its members will be financial market regulators, finance ministries and central banks of G20 member-states. with the St. Petersburg Energy Security Principles approved by the G8 in 2006. The likelihood of substantive progress in this area, in our opinion, is high. The Russian side will be ready, for example, to suggest an approach to the formation of some kind of trust measures needed for stable and predictable relations on the energy market, perhaps in the form of an early warning system for destabilization risks. Clearly this will require moving to a qualitatively new level of both forecasting world energy market development and liquid hydrocarbon trade and general international coordination in this area. A novel element of the G20 summit in St. Petersburg will be the discussion of the first report, as stipulated by a decision at the Los Cabos summit, on compliance with policy commitments assumed by the participants. In this context it is clear that we should anticipate the identification of new G20 priorities in this area for the mid-term perspective as well as a focus on the sources of economic growth. Russia will also have to follow through on another assignment from Los Cabos – the presentation of a report on new approaches in international trade flows (including taking into account the emergence of new forms of protectionism) and the role of particular countries with the aim of better understanding the influence of open markets on development and employment. There is hope that the St. Petersburg summit could strengthen the coordination of the G20 and WTO, including providing new impetus for moving forward on the Doha Round negotiations. In 2013 new initiatives should be expected from the G20 with regards to employment policies. In addition to the creation of new jobs, overcoming of structural unemployment and optimization of migration processes, particular attention will be paid to certain target groups – youth, the disabled, the elderly, single parents, etc. The G20 has a special Task Force on Employment and the results of its work over the preceding year will be one of the items on the agenda for the first joint meeting of finance and labor ministers, which will be held on the eve of the St. Petersburg summit. The assessment of the results achieved and identification of new opportunities naturally will extend to the G20’s anti-corruption efforts. Here the items for discussion include the Seoul Anti-Corruption Action Plan; work being carried out under the auspices of the UN and OSCE on the standards for “anti-corruption education”; and proposals on the development of a partnership with business, boosting transparency of government officials, prevention of corruption phenomenon in specific sectors and also during major sporting and other public events. The general outlines and certain mandatory elements of the 2013 agenda mentioned above do not imply that the process for forming the agenda is close to being finished. To the contrary, it has only begun. The logic of this process will be determined by the actions of the G20 in the implementation of already adopted decisions, in the discussion of issues in the outreach formats4, in initiatives anticipated from the upcoming BRICS and G8 summits, and in proposals by other international alliances and organizations. From the BRICS, in particular, we can expect a push toward the strengthening coordination of the actions of international and national development institutions (both existing and proposed institutions). From the G8, we can expect an emphasis on greater development of prospects for international trade (including the idea of a trade agreement between the US and European Union), the introduction of universal standards for taxing corporate profit and issues concerning the openness of economies. Naturally, the agenda for both the 2013 summit and the G20 as a whole will be determined by the constantly changing assortment of problems, risks and limitations of the global economy. Despite the very fluid nature of these factors, in our view, a certain general trend is now discernible – the main focus of both national regulatory action and global governance is general systemic risks, the reduction of which requires large-scale reforms whose therapeutic impact will only become apparent in the mid-term perspective. Meanwhile, acceleration of growth and new jobs are needed immediately. In essence, this collision, this search for common ground between short-term and long-term interests, is what drives all of the new regulatory measures in the Eurozone and EU-17 (including the five-year plan of the European Commission to reinforce the foundation of the currency union). It lies at the basis of the efforts to avert the fiscal cliff in the United States (i.e., the easing of the impact of the most radical “automatic” option of structural reforms for the social sector and tax system). These same conditions formulate the context of the transformation to a new growth model in China, Russia, India, Brazil and a number of other major developing economies. All of this boosts the significance of the mid-term components of the G-20 agenda, simultaneously drawing the line beyond which the G20, while remaining an anti-crisis manager, nonetheless transforms into a group for managing systemic risks and responding to long-term challenges. In a certain sense, this entails not just a new task but a return to the origins of the G20, i.e. the organization’s mission as determined at the height of the global crisis – to establish the rules for developing new rules. This time, however, the mission applies to the restructuring of the entire global economy, a process that is already underway.

4 Under Russia’s G20 presidency they will include a business summit (Business 20), civil society summit (Civil 20), youth summit (Youth 20) and labor union leader meeting (Labor 20), which will be held in June 2013 as a part of the St. Petersburg International Economic Forum. The meeting of representatives of expert centers (Think 20) was held on December 11, 2012. On December 12 the first consultations with representatives of business and civil society were held.

Considering that the most effective experience has been accumulated in the sphere of macroeconomic coordination and financial regulation, it would be logical to consolidate the G20 agenda primarily around such issues, bearing in mind that it is here that the most profound foundations are laid for resolving a wider spectrum of issues, including those related the crisis phenomena of globalization in the social sectors, labor markets, environmental protection and many other regional dimensions. The agenda of Russia’s G20 presidency is broader than that of the 2013 summit. There are a number of issues concerning the optimization of the G20 process. Understandably, for example, the package of political decisions and mutual commitments adopted by the heads of state must be underpinned by the ongoing management of the division of labor in the global of financial-economic agenda among international organizations engaged in the resolution of specific issues. A key task for the G20 is the optimization of interaction with the IMF, World Bank, WTO, UN and other such international structures. The institutionalization of the FSB, it seems, would speed up this process. On the other hand, as the first step on the path to transforming the recommendations of the G20 into mandatory norms of national laws, the transformation of the FSB into a “grounded” institution could in the future lead to the establishment of a new benchmark for the measurement of the effectiveness of the work of international organizations. Considering this prospect, it is possible that a G20 foreign ministers track could also develop. In our view, the uniqueness of the G20 to a large degree stems from its informal nature. It would likely be premature to force the institutionalization of the G20. For now the role of a secretariat can be adequately implemented by the managing Troika, the organization potential of which has yet to be fully utilized (primarily in terms of providing public access and transparency to the G20 deliberation process, including outreach events). The proposals currently under discussion include: launch of a permanent website; publication of annual reports following each presidency; de-bureaucratization of the style of documents adopted at summits; expansion of outreach formats, etc. The agenda for Russia’s presidency thus includes the further refinement and renewal of G20 priorities over the next three to five years. In the mid-term perspective it would be prudent to also develop a substantial portion of the positions of the subsequent action plan. The St. Petersburg summit might then serve as a launch pad for the next round of summits, linked by overriding goals, the pursuit of which would gradually provide structure to global governance as the world economy undergoes profound and qualitative transformations.