How Canada inspired the G7 to broaden its outlook

A street in Banff, amid the spread of COVID-19 in Canada. During a press briefing in March, Prime Minister Justin Trudeau spoke of the measures the leaders agreed on to tackle the virus. (Shutterstock)
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Updated 17 November 2020

How Canada inspired the G7 to broaden its outlook

  • The country helped set up the G20 to be the inclusive group it is today

DUBAI: “What the G20 says is, we are all in this together.” Sound familiar? If so, that may be because “we’re all in this together” has become one of the catchphrases of 2020’s coronavirus pandemic.

But this quote actually predates COVID-19. It was spoken in 2018 by the man sometimes referred to as the father of the G20: Paul Martin, Canada’s Liberal prime minister from 2003 to 2006.

It was Martin who, as Canada’s finance minister in the 1990s, looked around the Group of Seven (G7) and thought more countries should be invited to the forum for the world’s top so-called advanced economies. (Canada had been asked to join in 1976 almost as an afterthought, but more about that later.)

Martin talked to US Treasury Secretary Lawrence Summers about making it more inclusive. After the two drew up a list and presented it to the G7, the G20 was created as a parallel organization at the finance ministers’ level in 1999, with Martin as its first chairman.

It was at the G20 meeting in Montreal in 2000 that Canada championed moving the group beyond its financial mandate. The Montreal consensus on globalization affirmed that the benefits of economic growth should be more broadly shared and that the poor should be protected from the costs of globalization. 

“The G20 in my opinion is an essential tool because it represents the power of individual regions regardless of the state of your economy,” Martin said in an interview about the G20’s history on the website of the Center for International Governance Innovation.

“I tried very hard to get it up to the leaders’ level, having had something to do with its founding at the finance ministers’ level,” Martin said. “Everybody was on side, except the United States ... I was very sure, as were a number of us, it would take a crisis to bring it to the leaders’ level, and that’s exactly what happened (with) the 2008 crisis.”

After his minority Liberal government lost the 2006 election, Martin stepped down as leader, so ironically, he never got to pose alongside the G20 leaders in the summit’s traditional “class photo.” By the time the G20 reached the leaders’ level in 2008, holding its first summit in Washington that November in response to the global financial crisis, Conservative Stephen Harper was Canada’s prime minister.

Justin Trudeau, Prime Minister of Canada

It was Harper who presided over the one G20 leaders’ summit hosted by Canada, held in Toronto in June 2010 as the world emerged from the economic recession. While that meeting was relatively uneventful, Harper shook things up at the Australian summit in 2014, when he took a stand against Russia’s annexation of the Ukraine. Russian President Vladimir Putin left the summit early after Harper reportedly told him, while shaking his hand, to “get out of Ukraine.”

This stand appeared to fly in the face of his own wisdom, which Harper had shared at the 2009 summit in Pittsburgh, US: “Canada is big enough to make a difference but not big enough to threaten anybody. And that is a huge asset if properly used.” 

It’s an asset that, when properly used, has long gotten Canada invited to the party.

Pierre Trudeau, as Canada’s prime minister, had pushed to be invited to a 1975 meeting of leaders from the US, Britain, France, Italy, West Germany and Japan, dubbed the Group of Six, to discuss solutions to the oil crisis. While initially left out, Canada’s addition a year later made it the G7, and so it seems only fair that it would be the one in the future to push for others to be included.

At the G7 summit in 1976, Trudeau Sr. was already looking to expand the group’s purpose, saying its success should be measured beyond solving economic issues: “The success will be judged by whether we can influence the behavior of people in our democracies and perhaps even as important the behavior of people on the outside who are watching us, in a way in which they will have confidence that our type of economic and political freedom permits us to solve problems.”

We need to work together to have an impact that goes beyond our borders.

Justin Trudeau, Prime Minister of Canada

Justin Trudeau, the current Canadian prime minister, was a mere boy when his father spoke these words. Fast forward to November 2015, and it was at the G20 Leaders’ Summit in Antalya, Turkey that Justin made his heady debut on the world stage, less than two weeks after becoming prime minister. And while the young leader fired up “bromances” with former US President Barack Obama and later French President Emmanuel Macron at summits like this, much has been made about his awkward interactions with US President Donald Trump and Brazil President Jair Bolsonaro.

However, Canada has a global reputation to maintain as a bridge-builder, perhaps best exemplified by another of its Liberal prime ministers, Lester B. Pearson, who won the 1957 Nobel Peace Prize for helping to create the first UN peacekeeping force during the Suez crisis.

This bridge-building spirit was on display after Justin Trudeau attended the extraordinary virtual G20 summit called by Saudi King Salman on the COVID-19 pandemic this past March.

At a press briefing after the summit, Trudeau spoke of the measures the leaders agreed on to tackle COVID-19, including injecting the global economy with $5 trillion and pledging to help more vulnerable countries through organizations such as the UN and the World Health Organization. 

“We need to work together to have an impact that goes beyond our borders,” Trudeau pointed out.

Or, as G20 founder Paul Martin put it, “we are all in this together.”

China launches $28bn loan facility to support manufacturers

Updated 28 September 2022

China launches $28bn loan facility to support manufacturers

  • Yuan ends at weakest since global financial crisis, hits record low

BEIJING, SHANGHAI: China’s central bank said on Wednesday it has set up a relending facility worth more than 200 billion yuan ($27.59 billion) to help manufacturers and other companies upgrade their equipment, as part of a push to revive flagging demand.

The People’s Bank of China said in a statement that it will provide low-cost funds to financial institutions and guide them to lend to firms to support such upgrades. The loans will be issued on a monthly basis, and the interest rate for qualified firms will be no higher than 3.2 percent from Sept. 1, 2022 to Dec. 31, 2022, the central bank added. China’s one-year loan prime rate is currently 3.65 percent.

The lending facility will support sectors including education, health, culture, tourism and sports, electric vehicle chargers, urban underground facilities, new infrastructure and industrial digital transformation, the central bank said.

The PBoC has increasingly relied on structural, or targeted policy tools, including low-cost loans, to support the slowing economy, as it faces limited room to cut interest rates for fear of fueling capital flight and inflation.

The PBoC has rolled out relending facilities to support the transport, logistics and storage sectors that have been hit hard by COVID-19, as well as carbon emission reduction, tech innovation and elderly care.

On Sept. 14, China’s Cabinet announced steps to support equipment upgrades by companies, extending a raft of measures to bolster the COVID-ravaged economy.

Onshore yuan

China’s onshore yuan extended losses on Wednesday to end the domestic session at its lowest level against the dollar since the global financial crisis of 2008, while the offshore yuan hit a record low, pressured by expectations of more US rate hikes.

Currency traders said the yuan was reacting to broad greenback strength in global markets as the dollar hit a fresh two-decade peak against a basket of currencies, buoyed by safe-haven demand and a hawkish Federal Reserve.

In onshore markets, the yuan finished the domestic trading session at 7.2458 per dollar, its weakest such close since January 2008 and down 658 pips or 0.91 percent from previous late night close of 7.18.

The offshore yuan followed suit and weakened 1.15 percent on the day to trade at 7.2635 around 0830 GMT.

Fuel export

China may tweak a proposed sharp increase in refined fuel export quotas for this year by extending the plan into next year, as it weighs the benefits to the economy of higher exports against low domestic stocks and operational challenges, four sources told Reuters.

However, the four sources with direct knowledge of the matter — and three others — said the government was still reviewing the matter.

The market has been widely expecting China to release a fifth batch of fuel export quota of up to 15 million tons for the rest of the year, which would be its largest so far in 2022 and lift China’s sagging exports.

The proposal from refiners’ planning departments, following a government call to boost trade, has led some refiners to ready an increase in output to take advantage of the quota.

Third Jordan-Gulf Economic Forum begins in Amman

Updated 28 September 2022

Third Jordan-Gulf Economic Forum begins in Amman

  • Jordanian minister said value of trade between his country and Gulf Cooperation Council member states reached $6.6 billion in 2021

AMMAN: The third session of the Jordan-Gulf Cooperation Council Economic Forum began in Amman on Tuesday. It brings together officials and business representatives from Jordan and GCC member states to discuss opportunities for the expansion and development of economic relations, the Jordan News Agency reported.

The forum, which is taking place under the title New Horizons for Economic and Investment Cooperation, aims to advance the strategic objectives and interests of all participating nations, according to the Jordanian Ministry of Industry, Trade and Supply.

The delegates at the two-day event include businessmen, investors, the heads of trade federations and chambers of commerce, and representatives of Gulf and Jordanian government stakeholders, according to the ministry.

In his opening remarks, Youssef Shamali, the Jordanian minister of industry, trade and supply, said that the value of trade between his country and GCC member nations reached $6.6 billion in 2021. Jordanian exports to the GCC were worth $1.7 billion of that total, while Jordan’s imports accounted for $4.9 billion.

The minister added that Gulf nations are responsible for the most significant foreign investments in Jordan, and capital from the region has benefited the nation’s economy and created jobs for the Jordanian people.

He added that if Arab nations were to unite to form a powerful economic bloc, it would allow them to boost exports, increase production, create new job opportunities for young people, and achieve greater integration into the global economy.

ECB eyes blockchain for settling bank transactions, says official

Updated 26 September 2022

ECB eyes blockchain for settling bank transactions, says official

  • The ECB is among a number of central banks around the world working on digital versions of their currency in response to the popularity of digital tokens

FRANKFURT: The European Central Bank is studying ways of settling transactions between banks on a blockchain in a bid to keep control of money even if lenders switch to distributed ledgers, ECB board member Fabio Panetta said on Monday.

The ECB is among a number of central banks around the world working on digital versions of their currency in response to the popularity of digital tokens such as Bitcoin and the blockchain technology that powers them.

This distributed ledger technology is predicated on market participants verifying transactions and keeping a copy of them rather than relying on a trusted party, such as a central bank.

On top of a digital euro for consumers, the ECB is looking at how it could let banks settle wholesale transactions between them on a distributed ledger, rather than the central bank’s own.

“Despite the uncertainties surrounding DLT’s potential, we want to be prepared for a scenario where market players adopt DLT for wholesale payments and securities settlement,” Panetta said. 

We want to be prepared for a scenario where market players adopt DLT for wholesale payments and securities settlement.

Fabio Panetta, ECB official

He added letting banks settle among themselves or use stablecoins, which are crypto tokens pegged to a conventional currency, would result in “trading and liquidity becoming fragmented.”

Meanwhile, giving stablecoins the ECB’s backing would “outsource the provision of central bank money to private entities, endangering monetary sovereignty,” Panetta said.

As a possible solution, Panetta said the ECB might build a bridge between the private sector’s blockchain platforms and its own Target 2 settlement system.

Alternatively, it could make central bank money — the claim against the ECB in which wholesale transactions are settled — available on those platforms or create its own, he added.


Indian currency seen at record low as dollar, US yields surge; RBI eyed

Updated 26 September 2022

Indian currency seen at record low as dollar, US yields surge; RBI eyed

  • The rupee is tipped to open at around 81.30 per US dollar, down from 80.9900 in the previous session

MUMBAI: The Indian rupee is poised to hit a new lifetime low against the US currency on Monday, as worsening risk sentiment and a tumbling pound lifted the dollar index to its highest since 2002.
The rupee is tipped to open at around 81.30 per US dollar, down from 80.9900 in the previous session.
The local unit had reached a record low of 81.2250 on Friday, prompting the Reserve Bank of India (RBI) to sell dollars, according to traders. The RBI’s intervention had aided the rupee to turn briefly higher on Friday.
“It will be another choppy and volatile session. All eyes will be on state-run banks at open,” a trader at a Mumbai-based bank said, alluding to intervention from the RBI through these banks.
“The intervention by RBI at 81.20 was quite forceful and markets will want to know if that level will be protected again,” the trader said, adding, the RBI may not be too inclined to intervene given the “carnage” across Asian currencies.
The dollar index in Asia trading climbed above 114.50, the highest since May 2002, thanks to demand for safe-haven assets and a collapsing British pound.
The pound tumbled to a record low on Monday on fears the new government’s economic plan will stretch its finances to the limit. The rout prompted speculation of an emergency response from the Bank of England.
Asian equity gauges fell by as much as 2.4 percent and futures pointed to more losses for the S&P 500 Index. The offshore Chinese yuan declined below 7.16 to the dollar and the Korean won dropped more than a percent.
Treasury yields continued to march higher, not benefiting from the risk-off sentiment. The 2-year Treasury yield reached a fresh multi-year high of 4.27 percent on bets that the Federal Reserve will continue to hike rates aggressively despite the mounting growth risks. 

Bahrain’s GDP grows at 6.9% in Q2 2022

Updated 25 September 2022

Bahrain’s GDP grows at 6.9% in Q2 2022

  • The Gulf country will see modest hike in oil production in 2022 to 0.19 mbpd

RIYADH: Bahrain’s gross domestic product grew 6.9 percent year on year in the second quarter of 2022, posting the biggest annual increase since 2011, Bahrain’s Crown Prince Salman bin Hamad Al-Khalifa said on Twitter on Sunday.

In the first quarter, the Gulf country’s GDP grew 5.5 percent year on year at constant prices. The country’s non-oil economy recorded growth of 7.8 percent in the same period.

According to the latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics, Bahrain’s oil sector growth will be driven by higher oil production, despite a decline in the first quarter. Since 2015, the annual real growth of Bahrain’s oil sector has only expanded once relative to the previous year, in 2019. Based on the current OPEC+ agreement, Bahrain will see a modest increase in oil production in 2022 to 0.19 million barrels per day from 0.17 million bpd.

This small increase, combined with elevated prices, will return the oil sector to growth in 2022 before stagnating again as the government continues its diversification efforts. The forecast is for oil production to expand by 5.8 percent in 2022, compared to 2.4 percent in 2021.

Scott Livermore, ICAEW economic adviser, and chief economist and managing director, Oxford Economics Middle East, said: “The surge in oil prices and introduction of a 10 percent VAT is supporting Bahrain’s revenues and will help authorities come close to balancing the budget in 2022, two years earlier than the 2024 target set in the Fiscal Balance Program.”

The rise of inflationary pressures and rate hikes by the US Fed will force the Central Bank of Bahrain into more rate increases, beyond the 225 basis points cumulative increase in the key policy rate already this year.

Inflation averaged 3.4 percent in the first half this year, a level not seen since 2016, before rising to 3.9 percent in July.

ICAEW expects inflation to average 3.9 percent this year after prices fell annually in both 2020 and 2021.

Consumer spending is likely to be increasingly constrained going into 2023, leading to a GDP growth slowdown to below 2 percent by 2024.

As of now, the central bank has sufficient reserves to maintain the currency peg with the US dollar and is likely to follow policy moves by the Fed closely so it’s not expected to have significant pressure to devalue the dinar.

The current account returned to surplus in 2021 at 6.7 percent of GDP, the largest surplus since 2013. ICAEW expects the higher price of oil exports and a continued resurgence of international travel to push this surplus above 10 percent in 2022.