The next big test of the G20’s credibility will come when (or if) its finance ministers and central bank governors meet for the World Bank and International Monetary Fund spring meetings on April 18-24.
As the leading forum for international economic policy cooperation today, the G20 will have a crowded agenda. Top-line issues include central bank responses to escalating global inflation; accumulating evidence of rapid climate change; and coordination of health and fiscal policy. But the bear in the room will be Russia’s brutal assault on Ukraine and its repercussions.
Visible failures have undermined the G20’s credibility in recent years. During US President Donald Trump’s administration, G20 communiqués were regularly watered down to near meaninglessness. More recently, the group has failed to formulate an effective global response to Covid-19, let alone prepare for future pandemics.
The G20’s credibility is an important asset in a world of increasingly globalised challenges. Which means the meeting could be a watershed. So far, G20 members have approached the Ukraine crisis in very different ways, in terms of both public communications and policies. While the US and its allies have responded with significant sanctions, 38 countries, including China, India and South Africa, recently abstained from a UN General Assembly resolution criticising Russia and demanding humanitarian access in Ukraine.
According to the sanctions tracker maintained by Chad P. Bown of the Peterson Institute for International Economics, eight G20 members (all the middle-income members) have publicly declared their non-participation in economic sanctions against Russia, and Saudi Arabia — a US ally that is a partner of Russia within Opec+ — has proven similarly disinclined. It is thus apparent that the group will not reach a consensus even on how to describe Russia’s war or its effects on world markets. Yet to downplay Russia’s aggression in the interest of unanimity might erode the G20’s credibility beyond recovery.
The G20 is sure to weigh in on one prominent and direct repercussion of Russia’s invasion: A prospective fall in global food supply. Even before February 24, global food prices were approaching record highs, owing to a confluence of factors similar to those that generated food-price spikes in 2007-08 and 2010. Earlier episodes led to widespread social instability in some poorer countries; with many low- and middle-income countries now facing inflation pressures, higher debt levels and vulnerabilities to disease and climate change, the effects could be explosive.
Ukraine and Russia are top exporters of wheat, maize, and sunflower seeds and oil. According to the UN Food and Agriculture Organization’s recent projections, already-high food and feed prices could increase by 8-22 per cent over the course of this year and next, owing to the destruction of Ukraine’s production, storage and transport facilities, coupled with possible sanctions-related disruptions to Russia’s grain and fertiliser exports, elevated world energy prices, and higher shipping and insurance fees. The number of undernourished people could rise by 8-13 million.
As with previous food-price shocks, today’s crisis puts a premium on international policy coordination. Most importantly, as the FAO and the World Trade Organization have urged, the G20 must collectively reject beggar-thy-neighbour food export taxes or controls. These measures have begun to proliferate, even though they produced massive increases in global food prices in the past.
Calls for palliative measures can help, but unless they are accompanied by a frank discussion of root causes and remedies, they risk enabling bad behaviour. Russia could easily and unilaterally mitigate the crisis by ending its bloody assault, particularly its targeting of civilians and civilian infrastructure.
True, part of the global economic shock from the war is due to sanctions; but these would be scaled back were Russia to withdraw its forces and cease its bombardments. In the meantime, Saudi Arabia (along with the United Arab Emirates) could temper the surge in global energy prices by pumping more oil.
The bulk of the members should aim to draft and endorse a communiqué that candidly identifies Russia as the obvious source of both the problem and its remediation. This could be a simple statement of facts, free of language overtly condemning anyone. Of course, Russia steadfastly refuses to acknowledge the facts, arguing that “a possible food crisis is provoked not by Russia’s special operation in Ukraine but by the West’s illegal unilateral sanctions.”
G20 members, including Russia, are the major players affecting the global commons. It is still important that they communicate in all the critical areas where they wield influence, including nutrition, health and climate. Substantive agreement, where possible, will advance global welfare. But fundamental disagreement can and should be publicly acknowledged so that subsets of members can still pursue their own initiatives.
Mr Obstfeld, former chief economist of the International Monetary Fund, is professor of economics at the University of California, Berkeley, and senior non-resident fellow at the Peterson Institute for International Economics. © Project Syndicate, 2022.
