Thursday, February 16, 2012

Durban Conference



You know your negotiating strategy is in trouble when countries ranging as far as Norway in the developed world to partners like South Africa and neighbours like Bangladesh start quoting Gandhi and Nehru back to you.

Two months ago, this was the unfortunate situation Environment Minister Jayanthi Natarajan had to face at the Durban conference on climate change. That she managed, through a passionate last-minute speech, to ensure that all was not lost for India goes to her credit. But the fact that India found itself outwitted and cornered at the endgame of these negotiations, with no option but to resort to an angry ministerial plea, is an indication of how far New Delhi has lost its way on the issue.

As the dust from the conference settles, and a new United Nations deadline approaches for countries to submit their formal views on the subject by the month end, it is time to reappraise India's performance at Durban, and see what lessons it can learn from it.

Three objectives

India had gone to Durban with three predominant objectives. First, to secure the continuance of the Kyoto Protocol, whose ‘first commitment period' is scheduled to end in 2012. Second, to ensure that its particular concerns on equity, intellectual property rights and unilateral trade measures, neglected in previous negotiating rounds, were substantively integrated in the future climate agenda. And third, to preserve the notion of ‘differentiation' between developed and developing countries, recognised through the principle of ‘common but differentiated responsibilities' (CBDR) in both the U.N. Framework Convention on Climate Change (UNFCCC) and the 1992 Rio Declaration on Environment and Development.

Notwithstanding the euphoric declarations of victory in some national newspapers that uncritically peddled the government line, the overall results of the conference do not make comfortable reading for India. On the plus side, one may point to the fact that industrialised countries have now agreed to a ‘second commitment period' of the Kyoto Protocol, which requires them to reduce their emissions in a legally binding manner, potentially up to 2020. This is something India was anxious to secure, not least given its high investment in, and exposure to, the Clean Development Mechanism of the Protocol. The progress made in operationalising the technology mechanism that India championed might perhaps also be counted as a success. But these apart, there is little else from Durban that it can cheer about.

The continuation of the Kyoto Protocol, important as it may be, offers little more than an ephemeral gain. With the United States refusing to ratify the treaty; Canada blatantly disregarding its previous ratification; and Japan, Australia and Russia equally disinclined towards it, it is only the European Union's commitment at Durban that has still kept the Protocol alive. But it is unlikely to survive in its current form beyond this extended phase. And, going by past record, its ability to enforce serious emission reductions in developed countries also remains equally dim.

What India gave up in return at Durban however holds far more serious consequences. The most important decision that Parties took at Durban was to terminate the ongoing negotiating process on ‘Long-term Cooperative Action' (LCA) that had been launched under the Bali Action Plan in 2007, by the end of 2012. Adopted following tough negotiations, this had notably maintained the ‘firewall' between developed and developing countries and also the ‘linking clause' that had made mitigation by the latter contingent on the level of technological and financial support that they received from the former.

Copenhagen & Cancun

The 2009 Copenhagen Accord and the 2010 Cancun Agreements were both negotiated under this mandate. Even though they diluted the Bali ‘firewall', they nevertheless reaffirmed the core UNFCCC norms, that nations would need to combat climate change on the basis of ‘equity' and in accordance with the CBDR principle, respecting the various provisions of the Convention.

The new decision at Durban that now replaces the LCA negotiating track with the ‘Durban Platform for Enhanced Action' remarkably fails to make even a passing reference to these foundational principles. Calling instead for the ‘widest possible cooperation by all countries,' a preferred formulation of the West, it launches a new process to develop a ‘protocol, another legal instrument or an agreed outcome with legal force' by 2015, which is to be ‘applicable to all Parties', and enter into force from 2020.

Given the uncertainties of what this new mandate might ultimately produce, India did well to ‘loosen up' its legally-binding character by insisting on the inclusion of the third option. But the fact that a key decision was adopted for the first time in the entire 20-year history of international climate talks without even a cursory mention of ‘equity' and CBDR should give policymakers in New Delhi serious pause. What makes this omission even more striking is that it occurred, not through any oversight, but despite India's persistent and voluble invocation of these norms throughout the two-week long conference, and the months preceding it.

Absence of bedrock principles

Some have argued that since the new process is set to operate ‘under the Convention', all its principles and provisions will automatically apply, and hence do not need repetition. While this may hold some force, the absence of these bedrock principles from the Durban Platform text should be seen clearly for what it is: a successful attempt by the developed world to detach the future climate negotiations from their existing normative moorings, and to revise the very basis on which their legal obligations, and the legitimacy of the positions and arguments of countries like India, have so far been based.

India also failed in its bid to gain substantive recognition for the issues of intellectual property rights and unilateral trade measures. Even on ‘equity', the issue closest to its heart, all that it managed to secure in the end is a ‘workshop' on ‘equitable access to sustainable development', itself an ambiguous formulation, under a mandate that is now scheduled to expire. To what extent ‘equity' will find any formal operational recognition beyond 2012 remains an open question.

The outcome of the Durban conference — and India's failure to attain most of its stated objectives — should now raise serious questions about the wisdom of its negotiating strategy, and especially its alliance management. It should also raise questions about the capacity that it has brought to bear in these negotiations to date. At Durban, India fielded a delegation of 34 members, as opposed to 96 from the U.S., 101 from the EU, 228 from Brazil, 167 from China, and even 102 from Bangladesh. And insiders well know what the teeth-to-tail ratio even within this small group is.

Complexity of climate negotiations

However capable our top negotiators are, the sheer weight and complexity of climate negotiations today will inevitably lead to more slippages in the future unless this capacity constraint is urgently, and meaningfully, addressed. This overstretch is partly also the reason why key decision makers are left with little time to think more deeply and open-mindedly about the newer challenges that are confronting India today, and to develop effective and imaginative responses to them.

In recent years, India's climate foreign policy has undergone considerable oscillation, in not always explicable ways. While climate change is a complex issue, and genuine differences of opinion can exist among our politicians and bureaucrats on how best to approach it, it is far too important and strategic a concern for the country in the long run to be weakened by either individual caprice or collective groupthink.

If the interests of 1.2 billion Indians are to be adequately safeguarded in the coming decade and beyond, it is imperative that India develops both a coherent grand strategy to address climate change that enjoys broad cross-party parliamentary support, and a strong negotiating team to see it through.

Get your act together

In a few months' time, in June 2012, the international community will reconvene in Brazil to commemorate the 20th anniversary of the historic Rio Earth Summit. The developed world will then no doubt try to use the precedent set at Durban to press for a more general erasure of the principle of ‘differentiation' within international environmental law itself. If this is an outcome that India wishes to avoid, it needs to rapidly get its act together on this issue. Durban is a wake-up call that it must not ignore.

If India wants ‘equity' back in the climate change debate, it must develop a grand strategy and a strong negotiating team to see it through.

Saturday, February 4, 2012

CRIS


Finance Ministry Develops Comparative Rating Index of Sovereigns (CRIS); 


A New Index of Sovereign Credit Rating and an Estimation of CRIS over the Last Five Years

Major credit rating agencies give out the sovereign credit rating of each nation as an absolute grade. How other nations fare does not matter in a particular nation’s rating score. This is very different from a comparative rating. An example of comparative rating is the percentile score—the way GRE results are at times given. If a student is described as belonging to the 99th percentile, it clearly says something about this student’s performance vis-à-vis other students.

It is arguable that even for sovereign credit ratings there is a case for providing some kind of a comparative score. When an investor searches across nations for a place to put her money, the relative rating of nations is important. If nation i’s rating remaining the same, other nations’ ratings improve over time, there may well be a case to invest less in nation i.

Over the last five years, the global economy has gone through lots of highs and lows. Nations have moved up and down the ratings ladder. This makes it entirely possible that a particular nation that has had no rating change may now be better off or worse off in comparative terms. Also, a nation that has travelled down the rating ladder in absolute terms may be, in relative terms, better off because others have done even worse. Since, for investors, relative or comparative rating is such an important concept, it was felt that the Ministry of Finance ought to develop a new index which captures precisely this idea. Accordingly, the new index that has been developed is called the “Comparative Rating Index for Sovereigns” (CRIS). The detailed derivation of CRIS is available in the full paper on which this summary is based. The full paper is currently classified.

The computation of CRIS is based on nothing apart from Moody’s ratings and data on the GDPs of different nations as given by the IMF. In the paper we define CRIS formally and then track how nations have done over time. In order to capture this impact, the Ministry of Finance developed a new system for comparing the relative ratings of sovereign debt based on the historical evolution of their ratings over five years and the volume of their economic activity as measured by their GDP (not adjusted for Purchasing Power Parity (PPP)). The Finance Ministry develops a relative rating index and rank 101 economies according to this for the years 2007 to 2011. The index uses external data on GDP and ratings combined in terms of pure mathematical and statistical methods without interventions or interpretations.

The Moody’s ratings that the Ministry has used for all countries are the long term foreign currency sovereign ratings. To clarify, the Moody’s rating by this measure for India in 2007 and 2011 was the same (Baa 3). The CRIS score for these years for India were 66.47 (2007) and 69.83 (2011).

In other words, in relative terms India has become a better investment destination by 5.06%. In addition, India’s rank in terms of CRIS has moved up from 61st to 55th. If we view the rankings in terms of quintiles (blocks of one-fifth of the distribution) India moves from the fourth quintile to the third, that is, the middle quintile.

As expected the CRIS score for Greece has dropped sharply from 74.24 in 2007 to 13.97 in 2011—a decline of 81%; and that of Ireland and Portugal have dropped by more than 14%. Interestingly, in terms of CRIS, the U.S. has seen its score rise from 78.20 to 81.81. Ironically, this is accompanied by a loss of rank from the top of the chart to the 16th position. This shows that CRIS is distinct from a percentile score which is also a relative measure of status. In 2007 the 1st rank was shared between 20 economies but by 2011 this cohort had shrunk to 15.

The improvement in CRIS scores of nations such as India, China and Indonesia are partly due to the dramatic falls of scores of some European nations leading to a deterioration of the world average by over 4.8%.

This was especially evident in the cases of Greece, Ireland, Italy, Portugal and Spain. Dramatic falls of this type across the 2007 to 2011 period include Portugal’s fall from 23rd to 74th position with an index erosion of almost 15%, Ireland’s descent from the 1st rank club to 70th position with an over 14% fall in its index value and Greece’s precipitous dive from 30th rank to 101st (last) position accompanied by an over 81% fall in index value across the same period. Italy descended from 23rd to 37th rank with an index value loss of around 0.5%.Spain moved down from 1st to 34th rank and its index value lost approximately 1.35%. Iceland also suffered a great fall from 1st rank to 61st with an index fall of about 11.5%.

Other interesting developments include China’s index value increase of about 7.3% across the 2007 to 2011 time span. Brazil’s index value increased by 11.8%, Russia’s by about 7.5% and South Africa’s by about 5.79% in the same period. All the BRICS had improvements in rank as well as index value.

Among other economies, Israel increased in terms of CRIS value from 73.01 in 2007 to 77.58 in 2011 and Saudi Arabia had a CRIS value jump from 74.24 to 78.82 across the same period. Botswana’s CRIS value increased from 73.01 to 76.25 across the 2007 to 2011 interval.

The ten highest increases in the CRIS from 2007 to 2011 were achieved by (1) Paraguay (31.26%), (2) Lebanon (22.71%), (3) Bolivia (21.2%), (4) Uruguay (18.09%), (5) Belize and Nicaragua (both 15.63%), (7) Philippines (14.26%), (8) Indonesia (12.83%), (9) Peru (12.75%) and (10) Ecuador (12.27%). In interpreting these results, it needs to be borne in mind that for countries which began with low CRIS values, the scope for improvement is more. Seventeen economies had negative growth in the CRIS across this period. The ten highest decreases were (1) Greece (-81.19%), (2) Portugal (-14.82%), (3) Ireland (-14.14%), (4) Iceland (-11.52%), (5) Belarus (-10.05%), (6) Jamaica (-7.45%), (7) Egypt (-7.16%), (8) Cyprus (-5.94%), (9) Pakistan (-5.83%) and (10) Hungary (-4.66%). 



Source: http://pib.nic.in/newsite/erelease.aspx?relid=80004