John J. Kirton, professor of political science and co-director and founder of the G20 Research Group and of the BRICS Research Group at the Munk School of Global Affairs at Trinity College in the University of Toronto attended the Gaidar Forum at Russian Academy of National Economy and Public Administration in Moscow as an expert. Invest Foresight, the forum’s strategic media partner, had a chance to discuss with him, among other matters, Russia’s involvement with major international organizations and their effectiveness.
“We had been watching the BRICS even before it burst on a scene as a summit level institution, thanks to the initiative of the Russian Presidency, in 2009 in Yekaterinburg at its first summit, and as such an institution it sent a very powerful message to the world,” Professor Kirton said. “At the beginning, the G20 summit was the first responder to the global financial crisis which erupted on September 15, 2008 in NY. It was born with two distinctive foundations or missions. One was to promote financial stability, and the other was to make globalization work for all. At some stage many G20 members, the emerging economies and some developed ones, said, we stopped the immediate financial crisis born in the USA, but what about making globalization work for the benefit of all? And that’s why a BRICS summit of the big emerging economies with Russia playing a critical role then, being a member of the G8 and the new BRICS group, made the G20 itself act on its second foundation or mission, and that preserved financial stability not only in money markets in NY, but helped building the structural foundations for developing countries themselves.”
In his view, “The G20 actually ended not just the American or global financial crisis, but it also stopped the European financial crisis from going global. By 2013 when the Russian Federation hosted the G20 summit in St Petersburg, it really was able – with the full support of the BRICS members within the G20 – to take the G20 to focus like a laser beam on its second mission of inclusiveness, of inclusive growth and of making globalization work for all. The fact that we have not had yet a retail financial crisis, or one of a single country that spreads to its immediate neighbors (Argentina is the latest case), that fact shows not just the success of the G20 summit, but the success of the BRICS summit.”
Speaking of the possibility of a new financial crisis, Mr Kirton noted that “Despite the haunting periodicity and Mr Kondratiev’s business cycles – you never quite know where and when a Minsky Moment, as economists call it, happens. The G20 was born at the finance ministers’ level and with the Asian financial crisis of 1997-1999 they did a good job, but then we got a big surprise of 2008. There are lots of suspects, there are worries about China, Argentina, some people are worried about various debt markets in the US or, more globally, about the ever heavier debt burden as a percentage of GDP, the government debt, corporate debt, individual debts, so there is much to worry about. What we do know is that BRICS has now put in place instruments that are working and that could be first responders when the next crisis hits, so we no longer have to rely on just Central Banks of the US, or the UK, or Europe. BRICS now has a New Development Bank with money – and it could raise more money as well. There are emergency swap banks among BRICS members themselves that could defend them as part of the overall coordinated effort.”
“The decisive moment that ended the European financial crisis was at the G20 Los Cabos summit in June 2012 when all of the G20 members without the US assembled a firewall fund of $500 bln. Just the message was enough,” he stressed. “Every BRICS member contributed to that firewall fund. Since WW2 it was always the US that was a lender of last resort, a spender of last resort, but in 2012 it was absent, and it was the BRICS and a broader group of the G20 countries that took over that global function. So the next time the world needs a coordinated first responder, it will be looking to the BRICS, and when the next crisis does inevitably come, new institutions at some level of global governance will hopefully evolve to the point – thanks to the BRICS – that will allow getting through the crisis much less painfully than we did in 2008-2009.”
Settlements in national currencies, with periodicity discussed by the BRICS countries, in view of Professor Kirton, may be “very important as a contributor to a global financial safety net in more general terms, above making markets function more efficiently at the moment and deterring a new financial crisis. What we do know about the evolution of the existing global payments system centered in the US, UK and European payments and clearing systems is it was really driven by private sector’s demand. The existing private sector-led payment system has worked very well – with a little help from the governments at crisis times. So why shouldn’t BRICS countries have their own financial transactions among themselves? We could do that in the field of development, as we had the World Bank, but then we had (because we needed it and because G20 couldn’t do that) the BRICS’ New Development Bank, and then the Asian Infrastructure Investment Bank. There is even a broader field regarding infrastructure, China’s One Belt One Road initiative which is no longer China’s, as there are some 40 members in it. So why wouldn’t we do that in the field of finance too? So the sooner the BRICS can bring it into being, the better. We have to remember, of course, that from the beginning of the idea of the BRICS’ New Development Bank, it took several years before it materialized. We are approaching the moment – without a financial crisis – when we may see a real BRICS payment system starting to spring to life.”
Unlike many other national currencies, Russian ruble has been growing strong against US dollar recently. “This is a recognition of the real market dynamics,” John Kirton believes. “The US can not ensure a major lasting growth and markets know that, so they look elsewhere, at countries whose economic fundamentals are moving in the right direction. In Russia now, despite the sanctions, one can see the signs of hope. One thing that strikes many people is that for the first time in the history of the United States, for the past three years life expectancy there has been going down while in Russia it has been going up. So if one wants to invest, it would be a country that is moving in the right direction, where population is healthy which means productive, sharp for work and smart. That is one of the reasons why the Russian ruble is taking a second look.”
“The other big reason is, the US debt burden has hit a new record of a trillion dollars fiscal deficit with its debt burden relative to GDP going up,” he added. “The Russian fiscal balance has a strong surplus which most other countries of the G20, possibly except Germany, would look at with envy. Other points are currency reserves, gold, real assets. So there are a lot of fundamental reasons why rational market players would help the Russian ruble appreciate as they count on it in a foreseeable future.”
Yet a very modest growth in Russia for the past five or six years is a matter of concern. On the other hand, “Russia has not just a medium-term problem of sanctions, but it has a bigger medium to long-term problem that the US doesn’t have, neither does Japan or Europe apart from the UK,” Mr Kirton said. “Traditionally it’s been dependent on its hydrocarbons supplied domestically and for export. Because of the climate change crisis the Russian Federation just like Saudi Arabia and some parts of Canada have to diversify away from hydrocarbons, and that’s tough, because that industry has done so much for us for so long, and the whole economic system and the infrastructure are geared towards it. But once we see the real serious sustained multidimensional process of economic diversification in Russia moving ahead as part of a strategic plan, there will be no reasons why the Russian growth can’t get back on the road to a normal rate.”
But such a diversification should not be unattainable since “Russia like Canada has lots of forests, so Russia’s forest industry could be a global leader in many ways. Same with agriculture, as in the long run, Russia could be like Brazil or the US, a bread basket of the world. These two examples are the most visible ones, and there are many more. Many talk about High Frontier of the digital world and Artificial Intelligence. Some day all Russians who moved to Silicon Valley may come back, and a new generation will not leave. The hitech frontier is another sector where everybody wants to diversify and where Russia has a lot of assets,” Professor Kirton concluded, noting that in fact there are plenty of sectors for Russia’s diversification and there are respective processes under way already.