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World leaders meet as global economy faces many threats

By Jim Tankersley and Alan Rappeport

The New York Times

BALI,INDONESIA>> World leaders gathered Tuesday at a moment of severe geopolitical turmoil as the global economy slinks toward recession, weighed down by high inflation, a growing scarcity of food and the side-by side threats of oil shock and financial crisis.

President Joe Biden and his counterparts in many of the Group of 20 nations, which include wealthy countries like Britain and Japan and emerging markets like India and Brazil, are pushing for an aggressive and coordinated response to those threats. They hope to broker agreements meant to dampen global oil prices, help emerging markets escape crushing debt and increase food supplies to poorer nations where the cost of grain, rice and other staples has spiked since Russia’s invasion of Ukraine.

But the administration’s efforts have hit strong opposition from the two countries that will dominate Biden’s attention at the summit and that can arguably do the most right now to lift the world’s economic outlook: Russia and China.

Russia’s war in Ukraine has been responsible for much of the economic uncertainty facing the world, and on Tuesday, world leaders called for ending the war and easing global conflict.

President Volodymyr Zelenskyy of Ukraine addressed the G-20 gathering by video link and called again on Russia — whose leader, President Vladimir Putin, is not attending — to immediately withdraw its troops. Russia’s foreign minister, Sergey Lavrov, is attending the summit in Putin’s place.

Repeating his demands for accountability for Russian violations of international law, Zelensky said that Ukraine would not end its resistance until its territory was restored. “Every day of delay means new deaths of Ukrainians, new threats to the world, and an insane increase in losses due to continuation of the Russian aggression — losses for everyone in the world,” he said.

China’s leader, Xi Jinping, did not directly mention the war in his remarks at the summit but referred to a tense geopolitical environment and disrupted supply chains for food and energy.

“All countries should replace division with unity,” he said, according to a transcript from the Chinese Foreign Ministry. China, which has an increasingly strong partnership with Russia, has not condemned Moscow’s invasion, but this month, Xi cautioned against “the threat or use of nuclear weapons” in the conflict.

It is a pivotal moment for the global economy, as rising interest rates around the world are slowing growth and heightening recession fears. The strengthening U.S. dollar is worsening the debt burdens of developing economies, increasing the chances that government defaults rip through the world financial system like wildfire.

The International Monetary Fund, which downgraded its growth outlook last month, expects global output toremain sluggish this year and in 2023. In its latest projections, the IMF forecast the global economy to grow 3.2% this year and to slow to 2.7% in 2023. China’s growth appears to have stalled. Countries like Britain are already entering a recession, economic data suggest.

“Hopeful signs of recovery last year were replaced by an abrupt slowdown in the world economy because of COVID, the war in Ukraine and climate disasters on all continents,” Kristalina Georgieva, managing director of the IMF, said in a speech at the G-20 meetings Tuesday.

The World Bank said in a separate report released Monday that food insecurity remained a major problem despite signs that rising food prices had eased in recent months. More than 200 million people are projected to experience “severe food insecurity” in 2022.

“Domestic food price inflation continues to remain high in almost all low- and middle-income countries and high-income countries,” the World Bank said. “Despite decreases in global food prices since their peak in April, multiple risks threaten the downward trend in prices.”

Biden insists that the U.S. economy is strong enough to endure the economic crosswinds. But as they meet in Bali, Indonesia, Biden administration officials say the United States and its wealthiest allies want to act in concert with poorer nations to soften what could be a protracted downturn — and an especially damaging one for emerging nations.

Russia has destabilized food and energy markets by invading Ukraine. A punitive European embargo of its oil that is set to begin next month could drive crude prices skyward and slam consumers already hit hard by soaring price growth. American and European officials are working to finish the details on a program that would allow Russian oil to effectively bypass those sanctions — but only if it is sold at an even steeper discount than the one countries are already demanding from Moscow. Negotiators are hammering out the plan’s final details, including the level of the price cap.

The officials are also hoping to help heavily indebted nations avoid setting off a financial crisis.

Central banks around the world are raising interest rates rapidly in order to tame the runaway inflation that has been fueled in part by supply shortages prompted by Russia’s war. Those rate increases are helping to strengthen the dollar against foreign currencies, and they are hurting countries like Sri Lanka, Chad and Ghana, which borrow in dollars to bring food, fuel and other necessities to their people. Administration officials want to push the International Monetary Fund to accelerate debt forgiveness efforts as more countries come under financial pressure from rate increases.

But at the talks, it is China, a major lender to much of the developing world, that looms as the biggest obstacle to defusing such a credit crisis in low-income nations over the coming months.

On Monday, Biden pushed Xi to work with the United States on debt relief when they met for three hours in Bali before the summit. Xi, in turn, chided Biden for a suite of economic policies meant to support U.S. manufacturing at China’s expense, like subsidies and tax breaks for clean energy and semiconductor production that were included in bills Biden signed this summer, and restrictions aimed at choking off China’s access to semiconductor technology.

American negotiators have sought to work around China and Russia on economic issues before the gathering, leaning on help from Britain, Germany and India, among other nations, on efforts like the oil price cap. The approach jeopardizes the traditional consensus-based efforts of the G-20, which was meant to bring a wide range of countries together to solve global problems.

In previous gatherings of G-20 officials this year, the usual joint statement, or “communique,” could not be drafted. China has resisted strong language about debtors and debt, and there have been differing opinions among the countries about Russia’s war in Ukraine.

“In October, when there was discussion of the macro outlook, many, many countries said the single most important thing that we can do to improve the macro outlook is for Russia to end its invasion of Ukraine,” Janet Yellen, the Treasury secretary, told reporters in Bali, adding that there was broad support for that sentiment. “And, of course, Russia is a member of the G-20, and there are other countries that are reticent about criticizing Russia, so that’s been a problem all year.”

Amid concern that slowing growth in China is dragging down the global economy, Yellen planned to ask her Chinese counterparts about its zero-tolerance approach to COVID, which has included strict lockdowns, and about the state of its property market, Treasury officials said.

But three weeks before the European embargo of Russian oil is set to take effect, the United States and its allies in the Group of Seven have yet to settle on the mechanics of a price cap.

The Biden administration hopes that countries such as India and China, which have been stocking up on discounted Russian oil this year, will use the cap as leverage to negotiate even lower prices. Before the G-20 meetings, Yellen traveled to India to meet with officials and deepen ties with the country at a pivotal moment.

However, it remains uncertain if the untested policy will be enforceable and if Russia will retaliate, sending energy prices around the world even higher.

Yellen said the process of rolling out the price cap had been complicated because the European Union must unanimously agree to the price.

However, she said she expected that the price would be unveiled by Dec. 5 and that the policy would be effective.

 

 

 

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