Russian economics professor Konstantin Sonin, writing in the Moscow Times:
Russia is a country with large geopolitical ambitions. Both the Kremlin and the general populace dream of having as much influence on global affairs as during the glorious days of the Soviet Union. Yet the country produces slightly more than 3 percent of the world’s gross domestic product, and thus it will probably not play a major role at the Group of 20 summit to be held in Washington on Saturday. The only chance for President Dmitry Medvedev to make a significant contribution would be if he could bring to the summit some innovative proposals to help solve the global financial crisis.
Unfortunately, up until now, the country’s leaders have focused more on criticizing the way the world order is evolving over the last two decades– and particularly the U.S. role in causing the crisis and its excessive dominance in global affairs — than on putting forward any new, productive proposals to improve the situation.
British Prime Minister Gordon Brown heads a country with the same share of the world GDP and roughly the same level of economic clout as Russia wields. Nonetheless, he has been much more active in offering useful suggestions that have made the headlines of leading newspapers. One of his more practical ideas to help mitigate the crisis is to convince the Persian Gulf states to participate in the International Monetary Fund’s efforts to help the countries that are most in need of financial assistance.
This idea could have easily have been a Kremlin initiative. Russia, with its huge foreign currency reserves, could make a valuable contribution to Brown’s project, and this would serve as a positive example and stimulus for the sheiks to join in the efforts. For Russia, this project makes more sense than extending a $5.5 billion loan to Iceland, an idea that the Kremlin first floated in early October. (The problem with Iceland’s financial woes is not that it might purposely default on a loan but that the public debt is so enormous the country might never be able to pay it off, even under ideal conditions.)
Here is another area in which Russia could take the initiative. A major portion of the world’s financial operations takes place outside of the G20’s jurisdiction — that is, using offshore holding companies or unregulated markets. The idea of a global regulatory body sounds as implausible as the League of Nations sounded in the aftermath of World War I.
But Russia could propose a program to increase the transparency and regulation of global markets by calling for the gradual elimination of offshore companies. Moscow needs to clamp down on companies that do little or no business in the remote offshore zones where they are registered. This is a sore point for Russia, of course, because many large businesses are owned by offshore companies. The crisis provides a good opportunity to eliminate these complex, nontransparent ownership structures.
There is an ongoing debate in the United States and other countries about the legality of these offshore companies because many are used for tax evasion and money-laundering purposes. But a Russian initiative to crack down on the abuse of offshore companies would stand a good chance of being heard.
No major changes in the global financial order are expected from the upcoming meeting in Washington, if for no other reason than because outgoing U.S. President George W. Bush will represent Washington rather than President-elect Barack Obama. But the fact that China, India and Brazil were invited to the G20 conference — countries of no less importance to the global economy than the members of the G7 — is tremendously important. It is high time for putting forward some new ideas.