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4 May 202011:30

Deputy Foreign Minister Alexander Pankin’s interview with Rossiya Segodnya International Information Agency, May 4, 2020

652-04-05-2020

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Question: The WTO has forecast that global trade could fall by up to one-third this year. What is your opinion of the measures the EU and the G20 are taking to support their economies?

Alexander Pankin: We believe it would be premature to try to assess the measures that are being taken to support the economy. We will learn about their effectiveness from future reports by the concerned international institutions and agencies.

In reality, the current situation is complicated indeed. It is probably the first time in modern history that the world has seen all at once an actual freeze in some of the key economic sectors, a supply and demand imbalance, disrupted global supply chains, a dramatic plunge in the main commodity markets, primarily energy as well as financial markets, plus the largest ever outflow of capital from the emerging economies.

The problem has been further complicated by the plummeting domestic sales. Warehouses, including fuel storage facilities, are bursting with unsold goods, further disrupting economic activity. All the national economies have been hit very hard by a rapid growth of state and business debts, as well as growing unemployment.

International trade can help resume a positive economic trend. However, WTO experts have forecast that global trade could decline by up to 32 percent in 2020 due to Covid-19. More problems have been created by the protectionist moves taken in some countries to score political points at home, the unilateral “might is right” actions and the escalation of trade wars. The adoption of additional restrictions and isolationist policies are only increasing risks, disrupting the operation of the global economy as a single organism and complicating post-crisis recovery.

In this situation, the governments of all countries affected by the pandemic are taking prompt and targeted measures to mitigate the effects of the coronavirus infection on the economy. Most governments have opted for stimulating internal demand through direct payments and low-interest loans for people, plus large investment projects. The focus is on helping the backbone enterprises and small and medium-sized businesses, coordinating the activities of central and regional authorities, as well as eliminating disruptions on the stock market. Spending on medical services has increased considerably in most countries, where measures are being taken to strengthen the national healthcare system and social protection.

At the same time, solidarity and cooperation are what is needed more than ever before. The most optimistic scenario, according to which global trade will fall only by 13 percent, calls for close cooperation and tightly coordinated efforts. This path involves difficulties and calls for dialogue and readiness for compromise, but ultimately this will help us create the basis for the future recovery of the global economy.

The G20 could take the initiative to develop a common crisis management policy and relaunch the global economy. During an emergency videoconference summit of the Group on March 26, President of Russia Vladimir Putin proposed creating “green corridors” that would be free of trade wars and sanctions and used for mutual deliveries of medicine, food, equipment and technology.

As you know, the EU has announced a EUR 2.8 trillion package to support the member states’ economies, including 1 trillion euros the European Central Bank will use to buy euro area sovereign and corporate bonds so as to provide bank liquidity. The funds for this project will come largely from the member states’ budgets. At the same time, the European Commission has approved temporary relief from the common EU budgetary rules and dedicated credit lines of the European Investment Bank (EIB), as well as established a special relief package of around EUR 240 billion for the countries hit hardest by the pandemic

These support measures are impressive, but it is impossible to assess their economic effect so far.

Question: Is Russia ready to increase its contribution to the WTO, and by how much, in light of the US decision regarding this organisation?

Alexander Pankin: Under the WTO financial rules, contributions are calculated annually based on a given country’s share of international trade or jurisdiction. Russia’s share is currently 2.014 percent. Therefore, it would be premature to raise the question of increasing contributions to the WTO budget, including voluntary ones, until corresponding amendments to the organisation’s financial rules are approved by a consensus decision of all participants in the multilateral trade system.

Question: Are the financial measures being taken by the IMF and the World Bank sufficient? Which countries will be hit the hardest by the economic consequences of the pandemic?

Alexander Pankin: At this stage, it is hardly possible to assess the sufficiency and effectiveness of measures being taken by the IMF and the World Bank to mitigate the negative consequences of the Covid-19 pandemic.

First of all, these financial institutions have only started implementing the relief programmes they have announced for the member states, and besides, many of their projects are only at the planning stage.

Second, we have not yet fully analysed the potential scale of economic recession, although it is clear already that we are facing the largest ever economic crisis in our modern history.

According to the IMF, the cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around $9 trillion. Experts expect GDP to shrink by 5.9 percent in the US, 7.5 percent in the eurozone, 6.5 percent in the UK, 5.2 percent in Japan, 6.2 percent in Canada, 5.5 percent in Russia, 5.2 percent in Latin America and 2.8 percent in the Middle East. Moderate growth has been projected for the largest emerging economies in Asia, including by 1.2 percent in China and 1.9 percent in India. This forecast is based on the baseline scenario of the pandemic, provided most countries pass the peak by summer.

On the other hand, industrialised countries have sufficient resources for stimulating their national economies, unlike low-income countries. Growing uncertainty, liquidity problems, limited access to the international financial markets and large debts are increasing pressure on the low-income countries and hence limiting their capability to implement social programmes and take economic recovery measures.

Therefore, the most vulnerable countries definitely need international attention and coordinated support, including at the leading international financial institutions. Many of these countries have requested support from the IMF, which has expressed readiness to provide rapid financial assistance to the impacted emerging market and developing economies, just as in 2008-2010.

We welcome the positive IMF and World Bank measures, such as increased funding within the framework of emergency pandemic response mechanisms, debt relief for the poorest countries and priority assistance to healthcare and the most impacted economic sectors. We believe that this assistance should be provided to the poorest and most impacted countries in a transparent and non-discriminatory manner.

At the same time, it is unacceptable that the leading stakeholders of these organisations (the United States and its allies) have the ability to block the allocation of loans, including emergency financing, for political reasons even despite severe humanitarian crises (in particular, to Iran and Syria) under technical pretexts, such as debts and overdue payments.

Question: What consequences could the US decision to halt funding the WHO may have? Is it possible that the US will withdraw from the WHO, considering that US Secretary of State Mike Pompeo said Washington may never restore WHO funding?

Alexander Pankin: Detailed answers to these questions have been provided by my colleagues Deputy Foreign Minister Sergey Vershinin and Permanent Representative of Russia to the UN Office and Other International Organisations in Geneva Gennady Gatilov.

It is quite difficult at this stage to assess possible losses to the World Health Organisation (WHO) from the US decision. The organisation will be certainly affected, but the damage to its budget is unlikely to be irremediable.

It appears that the announced halt to funding will concern US voluntary government contributions. In 2018 and 2019, such contributions reached some $656 million or 15 percent of the WHO funding in that period.

As for US membership dues, which amount to approximately $120 million in 2020 or 22 percent of all obligatory payments, under the WHO constitution, non-payers have no voting right at the World Health Assembly, the organisation’s supreme decision-making body. The United States has not announced its withdrawal from the organisation, and losing its influence there is definitely not in its interests.

The United States has the largest arrears in the payment of its contributions to the WHO, some $200 million, which is enough for penalties. We can expect Washington to clarify its position at the upcoming World Health Assembly on May 18.

Question: How will the potential US withdrawal from the WTO, announced by President Donald Trump, affect the organisation? Could this destabilise it?

Alexander Pankin: Any WTO member has the sovereign right to withdraw from it. But will withdrawal benefit Washington? After withdrawal the United States will be unable to make use of the numerous rules and commitments on liberalised access to international markets, which benefited American exporters. At the same time, other countries will be able to use their own discretion when applying trade rules to American products.

Of course, this is a difficult time for the WTO due to suspended trade talks, lack of consensus and mutual complaints about compliance with requirements. However, a critical majority of WTO members are not thinking about abandoning ship but are mobilising their resources to address WTO reform, enhance the efficiency of its bodies, improve its legal framework and update the negotiation agenda.

Russia is actively contributing to the collective effort to find a solution to the current situation. We are advocating an open, transparent and inclusive trade architecture based on the accepted principles of non-discrimination and mutual respect for the member states’ interests and individual features. It is crucial that no country use WTO mechanisms for economic or political pressure.

The coronavirus pandemic, like any other crisis, not only poses risks but also offers new opportunities. In terms of trade, it offers the international community a chance to look more energetically for compromise solutions to its current problems. This has increased the desire of all but a very few WTO member states to maintain and strengthen the benefits of the existing multilateral trade regulation mechanism.

Question: Does the Foreign Ministry see any signs of cartel collusion in the current global oil crisis? When might the demand for oil rebound? What are Russia’s losses from falling oil prices? Is the take-or-pay principle enforceable in the oil market?

Alexander Pankin: The reasons for the current oil market crisis have been discussed in detail by the heads of the Russian energy sector and large companies, as well as by respected Russian experts. The coronavirus pandemic has obviously influenced the situation as well by reducing economic activity and hence the demand for energy around the world. There are also speculations with futures contracts and other financial instruments.

In light of the above, we can hardly speak about any cartel collusion. Market volatility and dramatic price fluctuations have taken place in recent months against the backdrop of multidirectional signals, with significant discounts on quoted prices and fluctuating demand for various oil brands.

As a result, the market dropped and became unbalanced, which has also affected other sectors, production chains and overall economic and financial stability. This has seriously alarmed all countries.

Seeking to settle the problem, the energy ministers of the 23 OPEC+ countries met on April 9 and 12, and the G20 energy ministers on April 10, to discuss measures to balance the supply and demand in the global oil market. It should be noted that these countries include both major oil producers and major oil consumers. A vital role in reaching agreements at these meetings was played by President Vladimir Putin, who discussed possible solutions directly with US President Donald Trump and King of Saudi Arabia Salman bin Abdulaziz Al Saud.

The statement adopted by the G20 energy ministers formalised their countries’ readiness to act in the spirit of solidarity to ensure the balance of interests between producers and consumers and the security of their energy systems. A new factor is that other states, including Brazil, Norway, the United States and Canada have joined the efforts of the OPEC+ countries.

The fact that such a broad coalition has reached an agreement shows that its members understand that responsible behaviour is crucial for stabilisation and for creating conditions for economic recovery and global trade.

It is not clear when the demand for energy will rebound, because it will only begin along with economic recovery in the leading countries and with the resumption of growth after the pandemic restrictions are lifted. The Foreign Ministry is not in a position to assess Russia’s losses from plunging oil prices. Statistics and forecasts are the purview of the economic departments.

As for the specifics of the oil market and its operating principles, this is a question for those involved in the market, including sellers/producers, insurance, financial and transport organisations.

Question: Which gas pricing mechanisms are being considered in the EAEU? Can gas prices be lowered for Belarus and Armenia? What does Moscow think about the Minsk idea of buying certain amounts of natural gas via commodity exchanges at competitive prices?

Alexander Pankin: One of the main mid-term objectives of the Eurasian Economic Union is to create common electricity, gas, oil and petrochemical markets. Comprehensive phased work is underway to attain this objective for each of these markets by the approved date, that is, by 2025.

The question of gas transport prices is one of many being discussed at the EAEU in the appropriate form.

Gas prices are currently based on bilateral agreements which take into account a number of factors, such as gas market trends. In particular, we maintain contact on this issue with our Belarusian and Armenian colleagues at various levels, primarily through the Energy Ministry and Gazprom.

Question: Uzbekistan has announced that it is working with Russia on a comprehensive strategic partnership declaration. What does this partnership involve, and is it seen as one more move by Uzbekistan towards joining the EAEU?

Alexander Pankin: The draft declaration on comprehensive strategic partnership between the Russian Federation and the Republic of Uzbekistan, which was initiated by our Uzbek partners, is not limited to economic cooperation. It is aimed at formalising the substantial progress made in our interstate interaction and at promoting our cooperation in foreign policy, security, finance, energy, transport as well as in culture and humanitarian ties, including multilateral integration processes.

The declaration will open a new stage in the implementation of the fundamental principles of Russian-Uzbek relations sealed in the basic bilateral international treaties signed between our countries.

The history of the EAEU has shown that a solid foundation of bilateral relations definitely helps promote cooperation in a broader format within the framework of international organisations, as well as offers new opportunities for finding solutions to difficult problems.

As for practical moves regarding the involvement of Uzbekistan in the EAEU, we believe that many steps have been taken recently. We know that the other day the lower house of Uzbekistan’s parliament took a majority decision to seek observer status at the EAEU. We welcome this decision and hope it will be finalised so that we can carry on our mutually beneficial cooperation.

 

 

 

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