Crises from Ukraine to banking await G-7 finance ministers

NIIGATA, Japan – Support for war-torn Ukraine will top the agenda at G-7 finance talks that started on Thursday, but ministers and central bankers will also weigh concerns from banking uncertainty to US debt default fears.

The three-day meeting of the Group of Seven developed nations comes with the global economy still unsteady after years of Covid-19 pandemic woes compounded by Russia’s invasion of Ukraine.

So the talks in the coastal city of Niigata in central Japan are a chance to set out a vision for financial stability before the G-7 leaders get together next weekend in Hiroshima.

US Treasury Secretary Janet Yellen arrived under the cloud of an impasse over Washington’s debt limit, which President Joe Biden has said could even force him to cancel attendance at the Hiroshima summit.

In Niigata, though, Dr Yellen will put the focus on addressing “shared challenges – including those stemming from Russia’s illegal war in Ukraine”, according to the US Treasury Department.

When the G-7 finance ministers met in April in Washington, they hailed International Monetary Fund (IMF) approval of US$15.6 billion (S$20.7 billion) in financing for Kyiv, recommitted to sanctions on Moscow and pledged “further actions as needed”.

There has been no official indication that new measures will be agreed during this week’s talks, but the door is open, said Professor John Kirton, director of the G-7 Research Group at the University of Toronto.

Fresh action could centre around “strengthening sanctions evasion by third countries, starting with China”, he told AFP.

European Union officials are already discussing halting exports of sensitive technologies to eight Chinese companies over suspicions they are selling them to Moscow.

The G-7 could also try to stop tankers covertly selling Russian oil in violation of the group’s oil price cap, or expand export bans, Prof Kirton said.

“With the EU Commission now supporting US leadership here, further serious G-7 agreement and action will come,” he said ahead of the Niigata talks, which Ukrainian Finance Minister Sergii Marchenko will join virtually.

Banking stability

Stronger supply chains, crypto regulation and climate finance will also provide talking points for the ministers, central bank chiefs and the heads of the IMF, the Organisation for Economic Cooperation and Development, and the World Bank.

“Enhancing economic resilience against future shocks (and) strengthening collaboration” will be key, Ms Madhavi Bokil, senior vice-president of Moody’s Investors Service, told AFP.

Japan’s Finance Minister Shunichi Suzuki this week stressed the need for vigilance on the banking crisis, which is likely to loom large in discussions.

Three regional US banks have collapsed since early March, sparking panic among customers and turmoil for the shares of mid-sized institutions.

In Niigata, “G-7 members can agree on a strong, unified message to reassure and convince customers and counterparties to stop their assaults” on such lenders, Prof Kirton said.

But disagreements may arise between European G-7 members and the United States on the need for regulation on digital bank runs, he warned.

There will also be a gulf on the issue of monetary policy, with most major central banks except Japan’s raising rates to tackle inflation in recent months.

The bloc, which groups Japan, the US, Germany, Britain, France, Canada, Italy and the EU, is expected to discuss infrastructure investment in less-developed nations.

Japan has been keen to use the 2023 G-7 meeting for outreach to countries beyond the group, and finance ministers from India, Indonesia and Brazil will join the Niigata talks, along with the South Korean and Singapore ministers.

The outreach is seen as key to swaying international opinion on both Russia and China, which funds infrastructure around the world through its huge Belt and Road Initiative. AFP