Russia, China water down G20 text on geopolitical tensions

A contentious meeting of Group of 20 finance leaders ended with Russia and China watering down communique language on geopolitical risks to the global economy, deleting a reference to "current" tensions in a final statement as markets fretted over the prospect of war in Ukraine.

The meeting hosted by Indonesia was one of the most fractious since the start of the COVID-19 pandemic in 2020, according to people familiar with the discussions. They also described protracted disagreements over language on debt restructuring for poor countries, carbon pricing and other issues.

As the meeting concluded, U.S. and European stocks fell on worries that a Russian invasion of Ukraine was imminent after Russian-backed separatists announced a surprise evacuation of their breakaway regions in eastern Ukraine to Russia amid stepped up shelling.

Instead of a reference to "current" tensions threatening the global outlook in an earlier draft seen by Reuters, the communique said: "We will also continue to monitor major global risks, including from geopolitical tensions that are arising, and macroeconomic and financial vulnerabilities." People familiar with the discussions said that both Russia and China had objected to the language on tensions.

That vaguer language contrasts sharply with a warning by finance ministers of the G7 group of large western economies on Monday that Russia would face "massive" economic consequences if it chose to invade Ukraine. Neither Russia nor China are members of the G7.

Debt Relief Standstill

The G20 talks, held virtually and in the Indonesian capital Jakarta, were also marked by disagreements over the group's stalled debt restructuring framework.

The final communique failed to endorse International Monetary Fund and World Bank proposals for an immediate debt service suspension for poor countries that seek restructurings and an expansion to include some middle-income countries.

Instead, finance officials reiterated their "commitment to step up our efforts" to implement the framework in a "timely, orderly and coordinated manner" without any specifics.

Earlier a source at the talks said China, by far the world's largest bilateral creditor, had baulked at the idea of accepting outright haircuts on debt.

World Bank President David Malpass said at the Munich Security Conference after the finance meeting that he was concerned the G20 "is not identifying the steps forward" to deal with a massive and growing debt overhang in developing countries. 

Credibility Questions

Indonesia's Finance Minister, Sri Mulyani Indrawati, said other sticking points involved the reticence of some countries to endorse carbon-pricing as a tool to tackle climate change, and how to help low-income countries such as Chad, Zambia and Ethiopia struggling with debt burdens made yet more unsustainable during the coronavirus pandemic.

"This also concerns the reputation and credibility of the G20 as a group of countries with the biggest economies to help countries that are in an uneasy situation," she said.

On other subjects, the latest draft of the G20 text pledged to use "all available policy tools to address the impacts of the pandemic," while warning that future policy space was likely to be "narrower and uneven."

Inflation is currently elevated in many countries due to supply disruptions, a mismatch in supply and demand, as well as rising commodity and energy costs, the draft communique said.

"Central banks will act where necessary to ensure price stability in line with their respective mandates, while remaining committed to clear communication of their policy stances," the draft read.

The diverging pace of recovery from the pandemic is complicating the policy path for central banks. Expected steady interest rate hikes by the U.S. Federal Reserve have drawn attention to the potential fallout for emerging markets.

While cases of the Omicron variant of COVID-19 are receding in many wealthy countries, they are still rising in many developing nations including host country Indonesia. 

The G20 text also pledged ensure that a landmark deal last year setting a global minimum level of corporate tax could be put into force in 2023.