April 14, 2007
India Demands New IMF Quota Formula by Arun Kumar
Washington
India and three other South Asian countries have demanded a new
"simple and transparent" International Monetary Fund (IMF) quota
formula that reflects on global economic changes, while fully
protecting low-income countries' shares.
"These twin outcomes can only be met if GDP is computed entirely on
the purchasing power parity (PPP) basis in the new formula," the
Indian delegate told the financial committee as the World Bank-IMF
group began its spring meetings here Saturday.
"No halfway house of blending GDP at market exchange rates with GDP
on PPP would meet these twin objectives," said Rakesh Mohan, deputy
governor of the Reserve Bank of India (RBI), representing
Bangladesh, Bhutan, India and Sri Lanka.
The four are of the view that their proposal for comprehensive
reforms alone will result in adequate, equitable and appropriate
representation for developing countries, he said.
"Such a broader representation of the developing countries would
enhance the acceptability, ownership and effectiveness of the Fund's
programmes and policies," Mohan said.
This twin outcome approach requires a sense of pragmatism and spirit
of compromise on the part of all member countries, he said
expressing dismay at some proposals being made that detract from the
spirit and purpose of the reform process.
"What the outside world and we understand by IMF reforms is an
outcome that seeks to realign actual quotas in line with current
global economic realities, Mohan said. "We need to resist all
attempts to obfuscate this intent."
The continued expansion in world GDP in 2006, with growth crossing
the 5 percent mark, points to the emergence of a new phase - one
that is more diversified with most regions posting higher growth
than in the previous year, he noted.
Mohan said, "It is heartening to note that the new robust phase is
driven by emerging market economies with China and India continuing
to contribute substantially to the global growth momentum."
The increasing integration of China and India into the global
production stream has significantly altered the efficiency of the
global production process, he said.
While Mohan saw good prospects for the global economy, he pointed to
a number of risks emanating from the behavior of oil prices, adverse
developments in the US housing market, persistence of global
imbalances, large leveraged positions in financial markets and
possible emergence of inflationary pressures.
In addition, there is also the threat of protectionist pressures
with adverse consequences on global growth. The evolving situation
needs to be carefully watched and policy makers should be ready to
respond to emerging challenges promptly and effectively, he said.
Noting that surveillance is the key responsibility of the Fund,
Mohan said adoption of new principles being currently debated must
be limited to the subject matter of surveillance over exchange
rates.
"We would be uneasy to see the insertion of any new principles that
qualify domestic policies with peripheral consequences on exchange
rate management," he said.
Moreover, given the sensitivity of exchange rates for emerging
markets, it would be desirable in the spirit of the Fund's role as a
confidential advisor to keep the exchange rate assessment internal.
Turning to key aspects of developments in his constituency, Mohan
noted that in India, the growth rate of GDP had exceeded 9 percent
during the last two years, and the prospects for 2007-08 continue to
be favorable.
"We remain committed to economic reforms, fiscal prudence and
monetary stability," he said noting that India's fiscal performance
for 2006-07 improved over the previous year and the Budget for
2007-08 aims to continue on the path of fiscal consolidation
consistent with the objective of the Fiscal Responsibility
legislation.
The Bangladesh economy too continues to maintain steady growth and
moderate inflation, while the outlook for Sri Lanka's economy for
2007 remains strong and the Bhutanese economy is poised to take off
on a more sustainable basis.
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