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1st Dec 2022

Russia backs EU in pre-G20 stimulus debate

Russia is siding with the European Union ahead of the April G20 summit in London in opposing new stimulus measures and instead putting the focus on regulatory reform. But Moscow has warned against IMF meddling in the social affairs of its neighbours in eastern Europe.

On Tuesday (17 March), Arkady Dvorkovich, Russian President Dmitri Medvedev's economic advisor and negotiator or "sherpa" in diplomatic discussions leading into the London summit met with the head of European Commission President Jose Manuel Barroso's cabinet in Brussels to discuss his country's perspective on the financial crisis.

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  • The Kremlin has issued proposals for getting the gears of the global economy moving again (Photo: kremlin.ru)

Mr Dvorkovich told reporters afterward that Moscow was on the same wavelength as the EU on its perspective on additional stimulus, saying: "It is important to avoid easy comparisons in terms of who did this and that. It is too simplistic when every country has its own specific situations and compare the amount of money raised."

"The most important thing is to implement what has already been announced rather than deliver new commitments and new promises."

His language is similar to the refrain of senior European leaders and other officials in recent days.

On Tuesday, in response to Nobel-prize-winning economist Paul Krugman's accusation that the EU and US are not spending enough to save the global economy, commission spokesperson Johanes Laitenberger told reporters that much of the announced European stimulus had yet to be implemented and that any assessment of whether the package has worked should wait until the money has been spent.

In recent days, a minor breach has opened up across the Atlantic, with the United States arguing that more stimulus is needed, and France and Germany saying publicly that they feel enough has been spent.

On Monday, the Kremlin published its proposals for a restructuring of the global financial system ahead of the G20. Consideration of the proposals formed the bulk of the discussion between Mr Dvorkovich and his EU counterpart. The Russian advisor described the European reception as positive.

Like the EU and US, Russia backs a reform in the leadership of the main international financial institutions, the IMF and World Bank, to more accurately represent the new balance of economic forces in the world, dropping the tradition of the IMF being headed by a European and the World Bank by an American.

But Moscow also warned the IMF to back off from imposing conditions that are too strict in terms of cuts to social spending, which could provoke popular opposition and lead to political instability in eastern Europe.

"Given the experience we had with the IMF [in the 1990s] when conditionality heads towards impacts on social obligations such as pensions or wage growth, then this becomes really politically sensitive and creates unnecessary political concerns.

"The IMF should avoid these political risks," he said.

He spoke out against structural reforms the IMF has already demanded in return for bail-out packages in eastern Europe.

"Ukraine should have a stabilisation programme, but the IMF should not try to impose anything 'artificially' on any country."

"Consensus in Ukraine is non-existent. It first needs more political dialogue to come to an agreement on what is acceptable. When the political situation is stable, then it can formulate an agreement with the IMF, [unlike] the current situation where the IMF is imposing something without public support."

"This is very dangerous."

New role for rouble?

Russia's G20 proposals also include the establishment of an international reserve currency or at least a diversification of the number of existing reserve currencies to include the rouble, a proposal that is unlikely to meet with any support from the EU or other G20 attendees. The dollar and the euro are the world's two main reserve currencies.

"It is necessary to take into consideration that most countries of the world place their international reserves in international currencies and would like to be confident in their reliability," the proposal reads.

Moscow also wants the summit to agree to a new international supervisor for the financial sector - the "Standard Universal Regulatory Framework" - which would monitor key economic indicators of countries that dominate the global economy.

Perhaps most controversial, Russia's proposals call for the mandatory regulation of macroeconomic and budgetary policies at the international level.

"We need to develop and adopt internationally agreed standards in the field of macroeconomic and budgetary policies which would be mandatory for leading global economies," says the document.

Intestinal strife

Mr Dvorkovich was in Brussels as an internal scuffle over Russia's response to the crisis broke out after Kremlin deputy chief of staff Vladislav Surkov this past week attacked him and another of the president's economic advisors, Igor Yurgens, for criticising the government's handling of the financial crisis.

Mr Yurgens had suggested that Prime Minister Vladimir Putin's "social contract," in which citizens concede a curtailing of freedoms in return for better economic conditions, is broken now that the economic boom is disintegrating.

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