The Financial Authorities’ “Futile Debate” 【Shun Nakahara’s One Word Today】 Updated July 20
A barren G20
The cracks were large. The G20 Finance Ministers and Central Bank Governors' Meeting, which ended on the 16th, failed to produce a joint statement and gave the impression of division over tackling high prices and recession concerns.
For Japan, it was an important meeting to explore the possibility of international cooperation on exchange rates. Ideally, it would be best if we could share concerns about a strong dollar, but even if not, Japan would have liked to include language in the joint statement such as “rapid exchange rate fluctuations have a negative impact on the global economy.” However, the topic of exchange rates did not come up at all, and Japan’s effort to link it to supporting emerging economies was left aside. Finance Minister Suzuki’s press conference stating that “previous exchange-rate agreements were reaffirmed” sounded hollow.
On the other hand, the United States was also in trouble. Secretary Yellen’s top priority was to set a cap on the price of Russian oil to curb global inflation and to sanction Russia over the “horrific consequences” of the war in Ukraine. Yet, this plan was unlikely to be realized for China, India, and others, and actual persuasion ended in failure. Efforts to “raise momentum” for the international tax agreement to set a 15% global corporate tax also faced domestic opposition in many participating countries when implementing it. Even in the United States, opposition voices emerged in Congress, and important votes were postponed. This can clearly be regarded as a retreat. In other words, in the G20, neither Japan nor the United States could achieve their initial goals, no joint statement was issued, and the outcome ended with a chair’s summary, which is not favorable.
Nevertheless, the G20 shared some of the most urgent issues, such as the causes and solutions to commodity price crises arising from Russia’s invasion of Ukraine. Europe’s concern was the possibility that Russia might close the major natural gas pipeline Nord Stream 1. Yellen also provided support on this point, stating that if supply were to stop, Europe would be hit hard, with significant impacts on each country’s economy. However, there was silence about whether Europe would actually fall into recession if such a scenario occurred. Put differently, the situation could become so serious—Russia had shown no intention of complying with such requests, and merely voiced complaints and demands.
Soon, countries shifted the focus away from inflation and war and toward measures to support vulnerable countries and regions, such as addressing debt default risks seen in places like Sri Lanka and strengthening food security. The G20 is reportedly considering a joint fund to address the food crisis, as revealed by the chair country Indonesia. This is arguably the only achievement for Indonesia as the chair. Still, it ended as a chair’s statement—which indicates that the cracks within the G20 are too large.
The only achievement may be that “each country’s focus” was scattered, yet at least it was clear.
