The real story at the G20

The press coverage of the G20 summit over the weekend was, understandably, dominated by the row over a so-called Tobin tax on financial transactions. Understandable, I say, because it had a bit of everything: a punishment for nasty bankers, an embarrassment for Gordon Brown as what looks like a last-minute attempt to grab the headlines failed and a simple tax idea that most people understand.

But in reality the Tobin tax suggestion wasn’t discussed all that much behind the scenes. The ministers have now handed over that task to the International Monetary Fund, which will return in April and tell us what kind of model for an international financial tax would work best (there are other models, and the one most people are now focusing features in my news story in tomorrow’s paper).

The real subject of deep and heated discussion – upon which I hear the “sherpas” (political behind-the-scenes negotiators) in all camps were still debating at six in the morning on Saturday – was climate financing. Now, before you start to nod off (as I am inclined to whenever anyone uses combinations of words as unpromising as that) this is important, and interesting. The forthcoming Copenhagen Summit partly revolves around trying to work out who should be paying for forthcoming efforts to cut carbon emissions. This G20 debate was supposed to iron out some kinks ahead of Copenhagen. As it happens there was a nasty disagreement which could end up making Copenhagen a serious embarrassment.

In short, the rich nations went into the meeting expecting the emerging powerhouses such as Brazil, India and China to agree to pay at least something towards these future costs (which include everything from investing in more efficient plants and power stations to creating carbon trading platforms to paying for research to find new green technologies). The emerging nations flatly refused.

In some senses, you can see why. 75pc of histoic carbon emissions came from the developed world. So the climate crisis (as one is supposed to call it) should be seen as a legacy left by rich nations, from which they have benefited in the past, and for which they should pay for the clean-up. However, it’s not quite that simple. 90pc of future emissions will be generated by the developing and emerging world. The rich countries are insisting, as such, that they pay their part.

It was a nasty stand-off and the weekend ended without any agreement on it. This is really worrying for all kinds of reasons. It reminds me of the stalemates we saw in the dying days of the Doha Round of world trade talks, and we know where that ended (though the WTO is planning to exhume the talks in a summit at the end of the month). Anyway, the days are ticking down to Copenhagen, and it looks increasingly like one of those occasions where politicians will have to use grand gestures and statements to mask the fact that in truth they can’t find any common ground at all.

Moody’s Won’t Raise India Rating Unless Debt Reduced

Nov. 10 (Bloomberg) -- India’s sovereign rating won’t be raised unless the government works toward reducing its budget deficit and debt, according to Moody’s Investors Service.

“Unless we see some hope for signs of improvement in government finance, India’s rating won’t be raised,” Moody’s Senior Vice President Tom Byrne said in an interview in Shanghai today. “We don’t see that yet.”

Prime Minister Manmohan Singh’s government is borrowing a record 4.51 trillion rupees ($97 billion) this year to fund stimulus packages and revive growth in Asia’s third-largest economy, forecast by the central bank to expand at the slowest pace in seven years. Higher borrowing is expected to widen the budget deficit to a 16-year high of 6.8 percent of gross domestic product in the 12 months to March 2010, according to the finance ministry.

“India has a lot of domestic-currency debt, a very high debt-to-GDP ratio, and a very high budget deficit year after year,” Bryne said. Moody’s has a Baa3 rating on India’s long- term foreign debt, the lowest investment grade.

A widening deficit made Indian bonds the worst performers this year among 10 Asian local-currency debt markets outside Japan, with a 5.88 percent loss, according to indexes compiled by HSBC Holdings Plc. The benchmark 10-year bond yield has added 2.04 percentage points, the biggest gain in at least a decade, to 7.30 percent, according to Bloomberg data.

Asset Sales

Standard & Poor’s, which has a BBB- long-term credit rating on India, the lowest investment-grade level, cut the outlook on the nation’s debt to negative from stable in February this year on concerns over deteriorating government finances.

Moody’s comments come after Singh’s government last week announced plans to sell stakes in state-run companies, which analysts expect will help reduce the budget deficit.

Prime Minister Singh said Nov. 8 that he hopes the decision would lead to “faster progress” on government sales.

The disinvestment program “is going to add to the amount of money available to the government,” said Ashok Jha, chairman of MCX Stock Exchange, which trades in currency and interest- rates futures. “The first impact of this is that the high fiscal deficit will decline substantially.”

India’s cabinet on Nov. 6 approved a plan requiring all state-run companies to make sure that 10 percent of shares are publicly traded and said proceeds from share sales should be used for spending on social programs such as creating jobs and building roads, ports and utilities.

Ratings company DBRS Inc. last month cut India’s long-term foreign- and local-currency debt rating outlook to negative from stable, citing “discomfort” with the “high” budget deficit.