The G20, currencies and trade

At the G20 summit in Seoul, Business RT spoke with Andrey Kostin, President of VTB about the major issues on the agenda and the role of the G20.

­ RT: Does the G20 remain as strong and united as ever? Is there still a consensus to overhaul and improve the world’s financial system?

AK: “Very much so. I think, G20 didn’t become global government, of course, but, I think, that from meeting to meeting there is a more consolidated ideas, becoming programmes, for example, or some consolidated measures. So, I think, that’s a very useful process and, I think, that showed that the idea of G20 meeting was quite fruitful.”

RT: What practical steps could G20 take to revatilize world economy and trade?

AK: “I think there is a number of discussions, of course. One of them relates to global sustainable imbalance growth, and, of course, here, there is a focus on budget deficits, reducing budget deficits, reducing government debt, controlling other main, key, macroeconomic figures. I think, that is quite important. On the other hand, there is, of course, a reform of international monetary fund, and another very important issue is creating financial stability, or special mechanism for financial security, which includes increasing capital liquidity adequacy of the banks, which includes the the creation of risk management for larger financial institutions, and which includes creation of the new more efficient scheme of modern financial markets.”

RT: The twin focus of this years’ Seoul G20 is tackling so called currency wars and balancing out global trade imbalances. How big a problem do you think that these two issues are?

AK: “Well I think, definitely, this conflict creates additional problems, at leads to more volatility of the exchange and currency markets and, I think, this is bad for the World economy. But, I think, this is a direct result of the crisis, which, of course, worsened the situation for many countries, and reduced consumption, reduced the wealth of the world. So, to be realistic, I don’t’ think, this G20 will resolve the issue or some strict measures like, for example,American side proposals will be implemented, as there are so many differences inapproaches of Chinese, Japanese, America’s, Europeans, other emerging markets. But, I hope that with the growth of the economy,with further discussion of this issue, it won’t be as acute as it is now.”

RT: Many developing countries seem to be looking after their own interest at the moment. Do you think, there is a need to implement a joint monetary strategy among these emerging economies?

AK: “I think, the answer is yes, but, I think, this should happen within G20 mechanism, because there’s no reason for specific groups – developed countries or emerging markets – to create their own models or to bring their own ideas, unless they are agreed between G20 and the rest of the leading world nations.”

RT: Germany’s Chancellor Angela Merkel recently cited increase of protectionism as being amongst the biggest challenges to face the global economy. What would you make of that and what would you cite as being among the biggest challenges?

AK: “Crises always lead to more protectionism, that’s the number one, I would say. So, from this point of view there’s nothing unusual that recent crisis led to the same situation – either the currency field or the trade field. Yes, I think, the answer is to liberalize the world economy, to liberalize the world trade. To liberalize the world economy is I think the correct way to proceed.”

RT: What do you make of the U.S. recent announcement of a second, $600 billion, round of quantitative easing? How has it ,and how will it continue to affect, do you think, developing economies?

AK: “I agree that to stop the Government supporting measures for the economy, it is too early. I think the Russian Government reduced substantially support, but also continues these programmes, and, I think, we’ll see a little bit more of government support for the next year or so, before the economy really starts to perform without government assistance. I think, it’s quite important.”

RT: And how has and will that the U.S. multi billion dollar stimulus package affects Russia’s economy specifically?

AK: “Well I think, that being a part of the Global economy, Russia’s economy substantially depends on the American economy as well. So, from this point of view, I think, the higher growth in America we see, the better for Russia. So, here we are in the same boat, I think.”

RT: Focusing on inflation now. How effective, would you say, that the RussianGovernment is in tackling this issue and what’s your forecast for inflation for the coming year?

AK: “I think, what was already announced by the Russian Government, for me, seems quite realistic. I think, the Government succeded in bringing inflation to the record lowest level and, I think, it will continue to reduce the inflation to the level of other developed nations within other 3-4 years. ”

RT: Turning now to the ongoing debate over the dominance of the dollar as a reserve currency and America’s management of it. What, do you think, it would take for leading countries to move to multi-currency reserves?

AK: “I think that will happen. I Don’t know how quickly, but, we, for example, VTB, are insisting that the rouble should be included in this process, at least for the purpose of a regional currency. I think, very big debts of American economy, the American Government, the volatility of the leading reserve currency is leading everybody to the conclusion that there should be a multi-currency basket, and I think that is going to happen in the future.”

RT: The head of the World Bank recently suggested reintroducing gold as an anchor for currency movements, What do you make of that?

AK: “Very hard to say and not very much believe in this. But we should consider this.I’m not ready to give any answer based on any analysis of this.”

RT: In your opinion, how can microfinancing help recover the global economy from the recent crisis?

AK: “I think there was a lot of on SME’s in general, when Russian President, Mr. Medvedev, met the group of international businessmen. I think there is a big concern that crisis affected, first of all, small and medium sized businesses, and without the support of the Government encouraging the bank, for example, for microfinancing, it will be difficult to build up SME businesses for the future. I think, this is one of the most important issues, which is on the agenda in Seoul.”

RT: In your opinion, what role can the banking system in Russia play to reinvigorate small and medium sized businesses?

AK: “I think, definitely this is quite a difficult decision for the banks, because financing SMEs is considered to be more risky than large companies. What was discussed today is some kind of special encouragement for the bank or special schemes. And the Russian President said that, in Russia, the number of schemes were set, for example, through Russian bank of Development, through other large banks, when the Government provides substantial support through the special programme for financing SMEs. I think, it brought certain results and, I think, those programmes will be continued. ”