India calls for WB, IMF reforms to reflect new global realities

by Gamini Warushamana

India is demanding a change in the structure and management of the World Bank and the International Monetary Fund (IMF) to reflect current global realities, said Indian Finance Minister P. Chidambaram on the eve of the annual meetings of the IMF and World Bank.

He was addressing the 60th Commonwealth Finance Ministers' meeting held in Colombo last week. The Annual Meetings of the WB will be held next week in Singapore.

However, Chidambaram did not elaborate on the new global realities. Political analysts in Colombo said India's new demand will be similar to her demand for a permanent seat in the UN Security Council. Developing countries demanding democracy in the UN, IMF and WB and India's voice in this regard is more vibrant.

Today, the common belief of the developing countries is that these institutions force their policies on third world countries and as a result there is growing opposition towards these institutions.

The economic power of the world has changed. Asia has become the engine of global economic growth. China, Russia and India need a greater role in the management of these institutions, they said.

Acknowledging the important role played by the two institutions by advising, cautioning, cajoling and lending to the nations of the world over six decades, Chidambaram said three aspects have to be considered as issues of immediate concern.

First, the participation in the management of these institutions has to undergo a change to reflect the current global realities more accurately.

A flawed structure will increasingly undermine the effectiveness of the institutions.

Second, the challenge before the world today is to meet the increasing aspirations of the vast majority of the people for freedom from hunger and for the bare minimum necessities of health and education. Third, there is a growing need among the member countries to negotiate the development curve in a compressed time frame. The relevance of the IMF and the WB would eventually be determined by their ability to play a meaningful role in these areas, he said.

Chidambaram said that India firmly believes that a fundamental reform in the quota structure of the IMF is needed to enhance the credibility and legitimacy of the IMF and give a greater voice to developing countries in the management of the international financial institutions. The present quota formula of the IMF is flawed and outdated and ad hoc quota redistribution cannot provide a durable solution.

We need a consensus on a new formula quickly. There must be a deep commitment to fundamental reform and there should be no postponement of a comprehensive review, Chidambaram said.

Quoting the IMF managing director's report that said the new formula should clearly reflect the economic strength of countries, Chidambaram said that all developing economies should strongly endorse it and called upon all developing countries to unite in Singapore to articulate a united view on the matter. It should also link amendments to the Articles of the IMF on basic votes, he said.

Chidambaram criticised WB strategies and said the bank has an unusual focus on governance and anti-corruption issues. The Bank proposes to integrate it into the operational policies of all its affiliated institutions.

Though we recognise the importance of the issue in the development dialogue, we would be unhappy if the new focus tends to obscure or negate the bank's development centric approach. Being multi-dimensional, governance requires a customised response to the relevant issues in each country, based on local knowledge and possibilities, he said.