By Arun Kumar, IANS
Washington : India has warned that the credibility of the International Monetary Fund (IMF) may be irreversibly eroded if new emerging economies fail to get due weight in its decision making process by next spring.
While India initially wanted quotas or share of voice to be based entirely on GDP computed in purchasing power parity (PPP) terms, it has now accepted the idea of a blended GDP in order to reach a consensus, Finance Minister P. Chidambaram told an IMF committee here Saturday.
Calling “upon the handful of countries that are holding out on the reform process, to move forward in a constructive manner,” he said that any significant and meaningful rebalancing of the institution’s shares should come through a new robust formula and not a mere increase in basic votes.
“Unless we are able to break this impasse by Spring Meetings of 2008, the credibility of the IMF as a relevant multilateral institution will get further eroded, perhaps irreversibly so,” Chidambaram said at a meeting of the International Monetary and Financial Committee.
Speaking on behalf of Bangladesh, Bhutan, India and Sri Lanka, he also stressed the urgent need to work on a new income model consistent with the Fund’s mandate without impairing its capacity to function with independence and autonomy.
Chidambaram said an even handed application of the new decision on bilateral surveillance over exchange rate policies of member countries would give the IMF greater acceptance.
Referring to the proposal to design a new liquidity instrument to strengthen the Fund’s crisis prevention efforts, he said the effectiveness of the IMF’s involvement in low-income countries has to be measured in terms of reduction in poverty, not just intermediate milestones.
The Fund and the World Bank also need to play a significant role on the demand side, factoring in the need for resources to address the development deficit in low-income countries, he said. Recent evidence suggesting a fall in aid in real terms also underscored the need for stepping up concessional finance.
Turning to the global economy and financial markets, Chidambaram said amidst the recent financial market turmoil, the growth scenario in emerging markets, which was more diversified this year, has by and large remained unaffected so far.
Noting that “China and India continue to impart considerable stability to the global growth momentum,” he said the most difficult challenge faced by policy makers in emerging markets is the management of macroeconomic consequences of large capital inflows.
Inflows that are beyond the normal absorptive capacity of economies exert upward pressure on exchange rates, which have implications for competitiveness, he said, asking the Fund to continue with research on these complex issues.
The initial impact of the financial market turbulence so far has been prima facie on mature markets. However, if the mature markets continue to remain volatile, it is unlikely that the emerging financial markets would remain insulated, Chidambaram said.
Later in a communiqué, the committee stressing the critical importance of the implementation of the programme of quota and voice reforms to enhance the representation of dynamic economies asked the executive board to work towards an agreement by the spring of 2008.
Welcoming the strong global growth in the first half of 2007, it noted that the global economy continues to be underpinned by strong fundamentals and the robust growth of emerging market and other developing economies.
Recent disturbances in financial markets in advanced economies are expected to have a moderating effect on growth in the near term and downside risks to the outlook have increased, it said.
The committee underscored the importance of sound macroeconomic policies in the medium term and continued vigilance to maintain well-functioning financial markets and to strengthen the foundations for sustained high growth.
It noted with satisfaction the resilience of emerging market and other developing economies in the face of recent financial market turbulence.
Expressing concern with the continued lack of progress with the Doha multilateral trade round, the committee urged World Trade Organization (WTO) members to work toward a prompt and ambitious conclusion of the Doha Round negotiations launched in 2001 as a development round.