Skip to main content

G-20: Where geopolitics trump economics

By John Defterios, CNN
September 4, 2013 -- Updated 1528 GMT (2328 HKT)
STORY HIGHLIGHTS
  • The G20 is being held in St Petersburg, but focus will be on tensions between Vladimir Putin and Barack Obama
  • Discussions are meant to be around economics, but will be overshadowed by Syria
  • Emerging markets have been suffering as demand for commodities drop, and currencies have collapsed
  • John Defterios writes the G20 has become an unwieldy group of countries with different priorities

Abu Dhabi (CNN) -- During the height of the 2009 financial crisis, when there was a real and present danger of banks seizing up due to a lack of liquidity, the then-British Prime Minister Gordon Brown altered the geopolitical architecture.

Brown moved with a sense of urgency to formalize the Group of 20 nations.

The strategy was sound. He wanted to bring countries representing 80% of GDP under one umbrella, bridge the gap between the developed and the developing world and, most importantly, tap the $4 trillion of surplus funds that still exist within the BRICS economies.

In the context of a financial crisis, the strategy worked. Four years later, however, geopolitics is trumping economics. The G20 has become an unwieldy group of countries with different priorities, and without political backing from Washington.

Schumer: Russia stabbed us in the back

According to Brown, who I interviewed earlier this year, America "should actually be more alert to the possibilities of international cooperation in both trade and agreements for growth."

King: Syria will define President Obama

Read more: Threat of military action sends ripples through global oil

Obama continues Syria push to Congress

A global trade agreement, the much-talked about pivot to Asia, and even serious concerns around capital flight out of emerging markets and their currencies will be overshadowed at this G20. Syria will be top of the agenda when the leaders convene in Russia's western outpost of St. Petersburg.

Focus is on the tensions between host Vladimir Putin and his U.S. counterpart Barack Obama. Their verbal jousting could further divide the G20, strategists suggest. The BRICS are, as a rule, not in favor of the military intervention being trumpeted by Washington and Paris.

"Business has taken a back seat and it should move to the front seat," Mustafa Abdel-Wadood, chairman of the executive committee at the private equity group Abraaj told me. "Politics tops the agenda."

Read more: Egypt slides into economic despair

The G20 has become an unwieldy group of countries with different priorities
John Defterios

The business agenda is headed by the near-panic reaction to a planned tapering of bond purchases by the U.S. Federal Reserve. Since Federal Reserve Chairman Ben Bernanke uttered word of that change in strategy back in May, money has been flooding out of emerging markets.

Ahead of this week's summit senior Chinese finance officials went out of their way to suggest, during a news conference in Beijing, the Federal Reserve should be more cautious with its approach.

China's Vice Finance Minister Zhu Guangyao welcomed signs of the U.S. recovery but said Washington "must consider the spill-over effect of its monetary policy, especially the opportunity and rhythm of its exit from the ultra-loose monetary policy."

Struggling to survive in Syria

The end of easy money or loose monetary policy in the U.S. is exposing the cracks in the emerging markets, which rode a decade-long, powerful wave of commodity-driven growth.

Spying on G-20 delegates?

Read more: Snowden's cat and mouse game leaves media in transit

UAE cashes in on its safe haven status

Without that export demand for grains, gold, palm oil, rubber, minerals and even manufactured goods, economies such as Brazil, India, South Africa, Turkey and Indonesia have seen their current account deficits balloon and their currencies plummet.

The India rupee is down more than 20% this year, most of that loss in the past quarter alone, as the country posted the worst growth in four years. Brazil and Indonesia have seen their currencies tumble 10%, requiring central banks to use currency reserves and in some cases interest rate hikes to stop the bleeding.

The tendency is for investors to make comparisons to the 1998/1999 Asian financial crisis, when those economies had wide current account deficits and a mountain of foreign currency government debt.

Read more: Style and substance of two leaders

"Most of Asia learned a lesson," Marios Maratheftis, global head of macro research at Standard Chartered Bank told me. The bulk of emerging market debt is now issued in local currencies.

Maratheftis said the "sudden stop" of capital flows to the emerging markets will create problems for those with widening current account deficits, but that this should not develop into a crisis provided there is a greater coordination of policies.

He is not holding out great hope for the discussions in St. Petersburg. "They talk global when they meet," he said of the G20. "But act local when they go home."

ADVERTISEMENT
Part of complete coverage on
October 9, 2014 -- Updated 0804 GMT (1604 HKT)
Liberia, Sierra Leone and Guinea -- the three countries facing the biggest health crisis -- are also facing huge bills to try and contain the virus.
September 22, 2014 -- Updated 1316 GMT (2116 HKT)
Twitter has lost its position in the top 20 coolest brands for the first time in three years.
September 25, 2014 -- Updated 1554 GMT (2354 HKT)
As the crisis in Iraq escalates, CNN looks at how Iraq could crack down on ISIS' oil riches under the guidance of its new oil minister, Adel Abdul Mahdi.
August 29, 2014 -- Updated 0842 GMT (1642 HKT)
Recep Tayyip Erdogan is Turkey's new president . So can he revitalize its economic fortunes?
September 19, 2014 -- Updated 1724 GMT (0124 HKT)
Experts share their tips on cities they see as emerging financial hubs...they're not where you think.
October 9, 2014 -- Updated 1511 GMT (2311 HKT)
Growing numbers of us are willing to serve as bank, teacher or travel agent to people we have never met, and entrust them to serve us in turn.
August 28, 2014 -- Updated 1244 GMT (2044 HKT)
The European Union is stepping in to save its dairy from going sour.
August 18, 2014 -- Updated 1236 GMT (2036 HKT)
Europe's deteriorating relationship with Russia has hit the region's growth, even before new food sanctions begin to bite.
July 16, 2014 -- Updated 1634 GMT (0034 HKT)
With cyberattacks on the rise and here to stay, it's a modern-day challenge for people and businesses to get smarter about preventing them.
August 14, 2014 -- Updated 1324 GMT (2124 HKT)
Airstrikes, rebels seizing control of oil fields, plus a severe refugee crisis are a recipe for market panic. So why are Iraq oil prices stable?
September 19, 2014 -- Updated 1124 GMT (1924 HKT)
Peer-to-peer finance lets businesses bypass bank loans. Creative companies with quirky ideas find new lending models advantageous.
July 20, 2014 -- Updated 1524 GMT (2324 HKT)
Evidence points to pro-Russian separatists as perpetrators of the attack and Vladimir Putin is facing questions, David Clark writes.
September 3, 2014 -- Updated 0952 GMT (1752 HKT)
CNN's Jim Boulden looks on the future of online shopping.
August 5, 2014 -- Updated 1440 GMT (2240 HKT)
The biggest Ebola outbreak in history is taking its toll in Western Africa, hitting some of West Africa's most vulnerable economies.
ADVERTISEMENT