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| G-20 agrees to halve deficits by 2013 |
| Sidhartha / Toronto Jun 29, 2010, 01:01 IST |
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But individual countries to decide on levying taxes on banks or other means to fund bailouts.
 Leaders from the group of 20 economic powers have agreed to halve deficits by 2013 and stabilise or reduce the government debt-to-GDP ratio by 2016.
At the same time, the bloc left it to individual countries to decide on levying taxes on banks or adopting other means to fund future bailouts.
Along the way, the G-20 leaders who completed their fourth meeting since the global financial crisis of 2008, on Sunday evening (early Monday morning in India), also diluted their position on a number of problems they had decided to fix earlier.
For instance, while reinforcing their desire to move to a more stringent capital structure, the communiqué issued after two days of discussions said countries would “aim” to put in place a new framework by the end of 2012, which was earlier the target date. Members will also get flexibility in phasing the new rules.
The good news is that once these rules are implemented banks will have more capital to deal with crises as the ratio of core Tier-I capital of a bank to its risk-weighted assets is expected to double from the present level of 2 per cent.
On trade, too, there was dilly dallying. The G-20 leaders, who had earlier said that the Doha Round of trade liberalisation talks should be concluded in 2010, have not mentioned any deadline now. All that has been said is that they will now deliberate on the ways to take forward the talks when they meet in Seoul in November.
The communiqué will, however, provide some comfort to developing countries as
G-20 members have decided against erecting any new trade and investment barriers.
Also, the decision to increase the quotas for developing countries in the International Monetary Fund by the Seoul summit was touted as another gain. Finance Secretary Ashok Chawla said that instead of the earlier timetable for reforms in January 2011, the calendar had actually been advanced by a couple of months.
While many elements in the 19-page statement were a reiteration of the earlier pledges, these were at least two new elements. One of them was a proposal to set up a working group on development. The other was the desire to focus on issues related to corruption with members urging to ratify and implement the United Nations Convention against Corruption.
However, the move by some developed countries to insert another new element — a levy on bank transactions — did not find a mention in the final text as the focus of the deliberations remained on reducing fiscal deficit levels. A key demand of European countries, was resisted by the US and developing countries such as India and Brazil.
After 45 hours of negotiating the text of the Toronto Summit declaration, leaders settled for a language with which all participants were comfortable.
So, it talks about “the global economy recovering faster than expected” and also about the possible risks in the form of uneven recovery, high unemployment rates in many countries and the possibility that global current account imbalances will widen again.
Besides, it said synchronised fiscal adjustment across several major countries could adversely impact recovery. And, given the divergent views on the issue, G-20 members settled for a differentiated strategy for each country.
For advanced economies, the communiqué said, consolidation will need to start in 2011 but those experiencing significant problems would need to start earlier.
India said it had already announced a road map to halve the fiscal deficit by 2013-14, while high growth would generate favourable debt dynamics and help reduce the debt-to-GDP ratio.
Along with deficit reduction, G-20 leaders also agreed on ushering in structural reforms by emerging surplus economies, such as China. These countries, which can tailor their reform moves to strengthen social safety nets, should increase infrastructure spending and enhance exchange rate flexibility to reflect underlying economic fundamentals.
The last element was being seen as a reference to China, which managed to ward off any reference to the yuan.
While many said there were signs of rift across segments, especially on reduction in deficits, G-20 members denied it. US President Barack Obama went to the extent of saying that there was “violent agreement” on the most contentious issue, but he warned that other countries must boost domestic demand. “No nation should assume its path to prosperity is paved with exports to America,” he said.
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