Western powers tangle over Russian assets at G20 finance meeting

By Andrea Shalal, Christian Kraemer and Marcela Ayres

SAO PAULO (Reuters) - Western powers butted heads over how to handle frozen Russian assets on Wednesday as G20 finance ministers kicked off a discussion of challenges for the global economy, trying to set aside deep geopolitical divisions.

Brazilian officials hosting the two-day meeting in Sao Paulo sought to focus talks on economic cooperation to tackle issues such as climate change and poverty, proposing a joint statement that avoids direct mention of the wars in Ukraine and Gaza.

Yet the geopolitical issues hanging over the event soon spilled into the open, with even close allies divided over what to do with Russian assets blocked by Western powers.

Those fissures were visible after ministers from the Group of Seven major democracies gathered early on Wednesday before the G20 proceedings, debating whether the frozen assets could finance the reconstruction of Ukraine.

U.S. Treasury Secretary Janet Yellen on Tuesday said she believed there was a strong basis in international law to unlock value from the Russian assets, as collateral or by seizure.

But French Finance Minister Bruno Le Maire argued on Wednesday that there is not enough basis in international law to seize the Russian assets, emphasizing that such a move would require the endorsement of G20 members and other countries.

"We should not add any kind of division among the G20 countries," he told reporters. "If the legal basis is not sufficient ... you will create more divisions at a time when we need more unity to support Ukraine."

Their disagreement underscored tricky geopolitical terrain for the G20 group of major world economies, whose foreign ministers last week in Rio de Janeiro vented deep divisions over the war in Ukraine and Israel's bombardment of Gaza.

Brazil's coordinator of the G20 finance track in Sao Paulo, Tatiana Rosito, said negotiations for the economic portion of the group's communique were successfully completed by deputy ministers in a "very positive" atmosphere.

A draft version of the communique, seen by Reuters on Tuesday, made only a passing reference to regional conflicts.

But German Finance Minister Christian Lindner said his country will only agree on the G20 communique if geopolitical issues such as the war in Ukraine are mentioned.

Speaking after the end of the G20's first-day session, Japan's vice finance minister for international affairs, Masato Kanda, said work on the G20 communique was still going on.

"There are many areas that still need discussion, including those outside of geo-political issues. It's hard to predict how everything will play out," Kanda told reporters.

Brazil is trying with its presidency of the G20 to shift discussions away from geopolitical tensions between major powers and toward a consensus on sustainable development, while trying to give developing nations of the Global South more voice.

In his address opening the meeting of finance ministers and central bank governors, Brazilian Finance Minister Fernando Haddad proposed a global minimum wealth tax, representing a potential new pillar for international tax cooperation.

Haddad had already suggested the G20 tackle tax havens for the most wealthy and inheritance taxes favoring the super-rich.

Brazil's central bank Governor Roberto Campos Neto called the fight against inflation a crucial tool for combating inequalities, one of Brazil's priorities in the G20 presidency.

While acknowledging recent progress in disinflation since the pandemic, Campos Neto called for persistence.

"There is still work to be done in the last mile, and risks remain ahead," he said.

(Reporting by Andrea Shalal, Christian Kraemer, Marcela Ayres and Leika Kihara; Writing by Leika Kihara and Brad Haynes; Editing by Chizu Nomiyama and Cynthia Osterman)