Global Economy and Framework for Strong, Sustainable and Balanced Growth to Dominate the Agenda

Union Finance Minister Shri Pranab Mukherjee will leave for Paris tomorrow evening on a three days visit to attend G-20 Finance Ministers and Central Bank Governors’ Meet on 18th and 19th February, 2011. He will return to national capital on Sunday,20th February,2011 morning after attending the two days G-20 Meeting on 18th and 19th February, 2011. During his stay in Paris, Shri Mukherjee will hold his first meeting with his French counterpart Ms Christine Legarde on his arrival on 18th February where the two leaders are expected to discuss both bilateral and multi lateral issues of mutual interest including revenue related matters.

In the afternoon on 18th February , the Finance Minister Shri Mukherjee would attend BRIC Finance Ministers meeting which would be attended among others by the Finance Minister of host China, the Finance Ministers of Brazil, Russia and South Africa  . The agenda would be as follows:

G 20 Framework and mutual assessment

Reform of the International Monetary System

Preparations for BRIC Summit(Beijing) and BRIC economic co-operation.

BRIC joint study and other issues.

In the evening, a reception would be hosted by French President Sarkozy  at Elysee Palace. Finance Minister Shri Mukherjee accompanied by Reserve Bank Governor Shri Subba Rao and Secretary, Economic Affairs Shri R.Gopalan would attend the reception.

The G20 Finance Ministers’ and Central Bank Governors’ Meeting under the French Chair will be held on 18-19 February 2011. The Ministerial meeting will be preceded by G20 Deputies meeting on 17th-18th February 2011.

The First Session of G-20 Finance Ministers Meeting would be on the Global Economy and Framework for Strong, Sustainable and Balanced Growth. This will be the major item for deliberation in the G-20 meeting. Accordingly, the bulk of the time has been tentatively allocated for the discussion on the Global Economy and the Framework to allow for a full and candid discussion of the issues.. The session is expected to begin, as usual, by a presentation by the IMF on the global economy, and then will focus on the Framework for Strong, Sustainable and Balanced Growth. Union Finance Minister Shri Mukherjee has accepted the French Finance Minister’s invitation to be a Lead Speaker in the second half of this Session along with Mr Jim Flaherty, the Canadian Finance Minister, as Canada and India co-chair the G 20 Framework Working group on Strong, Sustainable and Balanced Growth.

The main focus of the first session is expected to be on progress of the Framework Working Group (FWG) on developing indicative guidelines for assessing and addressing persistent global imbalances as mandated by Leaders in Seoul Summit under the Seoul Action Plan. India co-chairs the Working Group along with Canada.

Since the recovery of the global economy remains fragile, uneven and is fraught with significant downside risks. The coordinated response in the aftermath of the global crisis, and the resultant recovery, even if it is not complete, has clearly demonstrated the merits of a coordinated approach. Underpinning the effort to take forward the cooperation to address structural problems in the global economy has been the G20 Framework for Strong, Sustainable and Balanced growth.

The progress report by the FWG is expected to be placed for discussion of the Finance Ministers and Central Bank Governors. The FWG discussed a two-stage approach: a limited number of indicators will guide the initial assessment process, while a broader set – including qualitative ones – will be drawn on to inform the in-depth external sustainability assessment.  The FWG has identified  the following indicators as being broadly reflective of the patterns of imbalances across the G20 and that they should be assessed symmetrically, where appropriate (the fiscal indicator, for example, may not need be assessed symmetrically), against guidelines to identify large and persistent external imbalances: (i) The current account; (ii) A measure of real exchange rate and reserves; (iii) A measure of public financial positions: captured by a fiscal debt and/ or deficit measure; and, (iii) A measure of private financial positions: captured by the private savings rate and possibly private debt.

Once the indicators and guidelines are agreed to, the FWG proposes to undertake external sustainability assessments, with the technical assistance of the IMF and other international organizations, to identify the root causes of these imbalances and recommend corrective policy actions where appropriate. The external sustainability assessment will be led by the working group and will form an integral part of the MAP for which a report will be presented to Ministers and Governors at their October meeting, along with an Action Plan to address the challenges identified. As mandated by Leaders in Seoul, the IMF will perform an independent analysis of progress towards external sustainability. The outcome of these stages would be presented together in the MAP report – there would be no separate reporting of the various stages and the analysis would remain confidential until the Mutual Assessment Process has been completed.

India may stress the need to proceed  in a spirit of multilateral cooperation,  recognising that the guidelines arrived at are  not only be in the interest of the global economy, but  also in the interest of individual economies regardless of their size or their current rate of growth. In this context we may reiterate the Prime Minister’s suggestion at the Seoul Summit that a way must be found of channelling global savings to regions where huge investments are required for development and infrastructure.

Second Session would focus on Reform of the International Monetary System(IMS). The current monetary system has proven resilient but tensions and vulnerabilities, including global imbalances and strong capital flows volatility, are clearly apparent. The IMS has evolved over several decades. But the question of reforming the IMS has resurfaced from time to time, particularly in the years following a major crisis. A working group has been set-up to examine a range of  inter related issues.  The G20 Working Group on reform of the IMS will explore ways to strengthen the International Monetary System in a number of key areas that would include, but not be limited to: (a) Looking at actions to improve the management of capital flows, which would include the issues of macroeconomic policy measures in inflow and outflow countries, financial sector deepening (including issuance of debt in local currency and development of local capital markets), macroprudential measures, capital account control and liberalization. (b) Looking at actions to improve the management of global liquidity, in times of crisis and in normal times, which would include the issues of reserve management, multipolar currency reserve system, financial safety nets (including regional financial arrangements and their interaction with the IMF), and the role of the SDR.

Third Session will focus on commodities price volatility, another important agenda on the table of G-20 Finance Ministers Meet. Oil price volatility has been a part of energy issues being deliberated previously in the G20. However, it is felt that recent developments in commodities prices have become paramount for economic and political stability. In this session, Finance Ministers and Central Bank Governors are expected to exchange views on the recent trends and volatility, make an assessment of their possible macroeconomic consequences on growth and inflation, and discuss policy options with a view to improving the functioning of commodities markets.

The G-20 Deputies in their meeting on 15-16 January 2011 launched a study group to reflect on real and financial aspects of the issue. The aim of the study group is not to seek a consensus on a unique explanation of developments in commodity prices, but to present all views and technical evidences available. This group will seek to avoid duplication of existing G-20 work, by focusing its analysis on the macroeconomic and financial aspects of the topic.

Fourth Session would focus on Financial Regulation The G-20 has been paying great attention to Financial Sector Regulatory Reforms throughout its handling of the crisis through the five Summits (Washington, London, Pittsburgh, Toronto and Seoul Summits) to cover the products, markets, institutions, and regulatory frameworks.

. The meeting is expected to assess progress made to date on existing commitments, including the new capital and liquidity standards for banks (Basel III), compensation practices, excessive reliance on CRA ratings, the treatment of OTC derivatives and the identification of non-cooperative jurisdictions.

India has some specific issues on financial regulatory reforms that need to be delivered and implemented for greater credibility of the G-20. First, India has been stressing that the representation on standard setting bodies such as the IASB has to be more broad-based, as it is presently dominated by only some accounting organizations. Secondly, at the Seoul Summit, G-20 Leaders urged all jurisdictions to stand ready to conclude Tax Information Exchange Agreements (TIEA) where requested by a relevant partner. However, some countries are still not responding to the call of other countries to enter into TIEA and continue to insist on entering into Double Taxation Avoidance Agreement (DTAA) instead. The need to consider classifying such jurisdictions as non-cooperative jurisdictions may also be discussed. Global Forum on Transparency and Exchange of Information for Tax purpose may take up this issue while reviewing such jurisdictions and report back to the G-20. The G-20 has left it to each country to develop a toolbox of countermeasures against non-cooperative jurisdictions. India will soon come out with such a toolbox. Thirdly, to address concerns over continuing attrition of national tax bases through overseas and difficulties in obtaining necessary information on transaction undertaken by taxpayers that involve tax evasion. Some countries/jurisdictions differentiate between “tax fraud” and “tax evasion”. This difference in perception assists deliberate concealment of wealth for the purpose of evading tax, therefore there is need to encourage countries to remove this distinction in order to help efforts of government authorities in pursuing tax cheats who have parked funds outside the country. Lastly, overcoming tax evasion requires close coordination between all countries on a multilateral basis. There is need to develop an effective multilateral platform for automatic, spontaneous and requested exchange of information. There is need to encourage the Global Forum on Transparency and Exchange of Information for Tax purpose to develop a framework to monitor the effectiveness of these instruments on regular basis and report back to the G-20.

Fifth and final Session would be on Other Issues including Developmental issues. This would include follow-up on the report of the UN Secretary General’s High Level Advisory Group on Climate Change. In this Final Session, Mr Trevor Manuel, Minister in charge of the National Planning Commission of South Africa, will present the UN High Level Advisory Group Report on Climate Finance (AGF Report). In Seoul, Leaders welcomed the report and tasked finance ministers to consider it. Agreement will need to be arrived at on a way forward in 2011 in order to offer concrete recommendations on long-term sources for climate financing to G20 Leaders.

In Copenhagen, the developed countries committed, in the context of meaningful mitigation actions and transparency on implementation, to a goal of mobilizing jointly USD 100 billion a year by 2020 to address the needs of developing countries. Following the Copenhagen Conference of Parties, the Secretary-General of the United Nations established, in February 2010, a High-level Advisory Group on Climate Change Financing (AGF) to study the potential sources of finance for climate change.

The AGF report concludes that the goal of mobilizing USD 100 billion a year by 2020 is “challenging but feasible”. The Advisory Group identified four groups of potential sources of finance: public sources for grants (including tax or ETS in international transport sectors, removal of fossil fuel subsidies, other new taxes such as financial transaction tax and general public revenues through direct budget contributions), development bank type instruments, carbon market finance and private capital. In order to achieve USD 100 billion a year by 2020, the AGF recognized that a combination of these sources, both private and public, would be needed.

As far as Development issues are concerned, the final session will also briefly discuss an update on progress in the relevant work streams of the G-20 Development Working Group, including on infrastructure, where a new High Level Panel on Infrastructure has been tasked to make concrete recommendations for financing instruments and projects.

India welcomes the Constitution of the High Level Panel on Infrastructure investment and hopes that this would facilitate innovative ways to mobilize private, semi-public and public resources for national and regional infrastructure and for a comprehensive review of MDB policy. Through the G-20 platform, and at the domestic level, India is committed to overcoming obstacles to infrastructure investment, developing project pipelines, improving capacity and facilitating increased finance for infrastructure investment.

India’s stand on mobilising greater resources for infrastructure was highlighted by the Prime Minister Dr Manmohan Singh in his plenary speech during last G-20 Summit at Seoul, wherein he called for recycling surplus savings arising out of global imbalances into investment in developing countries for infrastructure development on a large scale. MDBs and RDB have a major intermediation role in this regard multilateral and Regional developmental agencies are expected to  recognize the political message underlying the G 20 development agenda and reflect this in their own objectives. However, if the G 20 development agenda is to get traction, it would also be necessary to substantially enhance their resources and overhaul their lending procedures so transaction costs are brought down and the pace of disbursement is vastly stepped up.

The meeting will conclude with the signing off of the Communiqué on the last day of G-20 Finance Ministers Meet on 19th February,2011. The Finance Minister Shri Mukherjee will be back home on 20th February,2011 after attending the two days G-20 Finance Ministers Meet in Paris.

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