What the G20 Need to Talk About This Week
Critical discussions will take place in Washington this week, notably the annual spring IMF and World Bank meeting and the meeting of G-20 finance ministers, which I will lead.
Since 2008, our meetings have been weighed down by deep concern over the magnitude of the global financial crisis, increasing public debt levels, slow growth and rising social tensions. This week's meetings provide key opportunities to reflect on how to prevent such profound financial difficulties in the future.
We must assess the measures taken to stabilize financial markets and stimulate economic growth. We need more interactive discussions and closer coordination of national economic policies. While glints of optimism may be visible on the horizon, uncertainty is likely to remain the prevailing forecast for some time to come.
The strengthening U.S. economy is an encouraging sign. The sustained recovery of the housing market, along with the surprising resilience of household spending and corporate profitability contribute to steadying growth. This should ripple positively through the global economy.
Still, there is little progress on a long-term strategy for putting America's fiscal house in order and stabilizing the country's debt burden. Investor confidence has improved, but corporate investment remains subdued. This holds back a more robust recovery.
Similarly, in the euro zone, although relative calm and some stability have returned to financial markets, the weakness of the real economy persists. Uncertainty and inconsistency in the policy approach to the ongoing debt crisis has damaged confidence.
When European leaders reached important agreements on reforms in the financial and public sectors last summer, a real turnaround seemed close, notably with the planned banking union. However, the delays in the implementation of the measures have bred exhaustion, both from countries whose citizens are subject to austerity policies as well as from those providing financial support. Instead of turnaround, we see a turning back.
The fragile underpinnings of the global economy were most recently exposed in Cyprus. When the foundations of this small island that makes up only 0.5 percent of euro zone GDP (gross domestic product) shook, much of the world paid attention.
(Read More: EU to Explore 'Frontloading' Payments to Cyprus)
How the European authorities handled the crisis cannot inspire great confidence. The poor process to restructure Cypriot banks, the notion of a deposit tax and imposing capital controls set a bad precedent and dealt a heavy blow to local businesses and population.
Indeed, a more consistent approach by European authorities could have prevented some of the deposit flight from Cyprus prior to the crisis that inflated the cost for depositors who had put their trust in the European legal system.
All of this happened after European regulators silently witnessed the Greek debt problem migrate to Cyprus followed by a substantial "haircut". This could have been avoided with the introduction of proper coordinating mechanisms.
We hope the European Stability Mechanism (ESM) can finally now reach a point of enabling the long-awaited recapitalization of banks in countries with high public debt. We also hope that this experience will refocus European policy makers on the pressing need to enact a banking union, progress on which has stalled since last fall.
The lack of coordination compounds the risks within an interconnected global economy.
Unconventional monetary policy in developed countries contributes to low interest rates and a gradual recovery of the economy. But it also risks higher inflation and, by pushing investors to search for yield in riskier assets and markets, capital flows can become excessive and spur asset bubbles.
The discussions over the right choice of fiscal and tax policies and measures to stimulate growth must continue. Substantial budgetary risks and delayed fiscal consolidation raise doubts on easing debt burdens. The G-20 needs to address how to ensure economic growth while implementing fiscal consolidation.
From 2015, the IMF expects annual global growth of 4.5 percent, driven in particular by the locomotive of emerging markets and developing countries. In 2007 these economies accounted for 44 percent of global GDP. By 2017, this figure may reach 54 percent. Maintaining this trend will benefit everybody.
(Read More: Not Concerned About Hard Landing in China: IMF)
This year's spring meetings are a key step toward the full recovery we all want. Learning the right lessons from history and letting them drive reforms is the path to stability and growth. We have an opportunity to enhance the lives of the billions of people we represent.
Open, honest dialogue followed by decisive action must characterize our meetings this week. That is how to make the global economy we all share truly work for all of us.
Anton G. Siluanov is the finance minister of the Russian Federation, which holds the G-20 Presidency