Emerging Nations Join G-7 on Debt Strategies, Storchak Says

Developed nations and some Group of 20 emerging countries will publish four-year debt strategies next month even as they brace for news on U.S. plans to curb bond purchases, Russia’s deputy finance minister said.

Emerging-market countries including Russia, Mexico and Indonesia will join the G-7 and Australia in agreeing on the strategies at a September summit in St. Petersburg, Sergey Storchak said yesterday in an interview. The strategies will include projections through 2017 for debt-to-GDP ratios, fiscal deficits and the cyclically adjusted primary balance, which removes the effects of economic swings on budgets, he said.

“These are target levels, a benchmark, rather than firm commitments,” Storchak said in Moscow. “It will give greater confidence to investors, who are carefully following the debt stability of all financial-market participants.”

President Vladimir Putin will host leaders from 20 of the largest developed and emerging economies in his hometown of St. Petersburg on Sept. 5-6. Less than two weeks later, the U.S. Federal Reserve’s monetary-policy committee will discuss whether to trim the scale of its $85 billion in monthly asset purchases.

While the Standard & Poor’s 500 Index has advanced 14.4 percent this year, speculation over the timing of the Fed’s tapering has prompted a sell-off in developing-market assets, with the MSCI Emerging Markets Index losing 13.7 percent.

Investor Trust

“We cannot win investors’ trust unless governments are open and transparent in the way they manage their budget deficits and public borrowings,” Putin said in an address to G-20 leaders published today on his website.

One of the main agreements reached in preparation for the summit is that G-20 nations should act to support economic growth and implement medium-term fiscal consolidation strategies, Putin said.

Along with the deficit and debt levels through 2017, countries will also publish economic assumptions underlying the forecasts, according to Storchak. They’ll project real and nominal growth rates for gross domestic product, as well as short-term and long-term interest rates for each of the four years.

Russia will offer countries a platform to discuss the Fed’s plans, as well as ways to ease the spillover effects on developing nations, according to Storchak. He declined to comment on statements this week by Fed officials indicating that the U.S. wouldn’t be able to give emerging markets more detailed guidance on their plans.

U.S. Interests

“We only have a mandate to concern ourselves with the interest of the United States,” Atlanta Fed President Dennis Lockhart told Bloomberg Television on Aug. 26. “Other countries simply have to take that as a reality and adjust to us if that’s something important for their economies.”

John Williams, president of the San Francisco Fed, said yesterday that the Fed must “communicate very effectively with other central banks around the world what our plans are.”

“We don’t know for sure the depth of the problem, we can only guess that India’s not entirely comfortable; the Indian rupee has weakened too sharply,” Storchak said. “Something’s happening in Brazil, the Brazilians are worried, too. Probably the Mexicans as well. The ministers will come, and we’ll hear what they have to say.”

Currency Weakness

The Indian rupee has tumbled 20 percent against the dollar this year, the most among 24 emerging-market currencies tracked by Bloomberg. That compares with a 12.9 percent drop for the Brazilian real, a 8.1 percent decline for the Russian ruble and a 3 percent fall for the Mexican peso.

G-20 leaders will probably approve proposals to expand automatic exchange of tax information and sign off on a tax strategy that seeks to prevent large corporations from shifting profits to low-tax jurisdictions, according to Storchak.

The plan, drafted by the Organization for Economic Cooperation and Development, is backed primarily by Germany, France and the U.K. and is also supported by Russia. It won approval at a meeting of finance ministers in Moscow in July.

While the potential escalation of the conflict in Syria may dominate bilateral meetings in St. Petersburg, heads of state probably won’t break protocol by bringing up something that’s not on the summit’s agenda, according to Storchak.

“In Cannes in November 2011, the situation in Greece had really deteriorated, but I’m sorry, it wasn’t on the agenda,” he said. “The leaders from euro-zone countries kept getting up from the table to discuss something by themselves, probably Greece. But never at the table in front of everyone else.”

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