'India, China should play bigger role in global financial bodies'
Saturday, 24 May 2008, 02:04 IST
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Washington: A World Bank backed independent commission has suggested a rebalancing of global responsibilities and representation of new global players like India and China in international financial institutions. The growing wealth and influence of the developing world in the global economy means these countries share a "joint responsibility" for the stability of the global financial system, it said in a "Growth Report" released Wednesday. The Commission on Growth and Development is an independent body supported by Australia, Sweden, the Netherlands, Britain, William and Flora Hewlett Foundation and the World Bank Group. Currently, no international institution allows developing countries to "discharge this responsibility properly", the report said. Given the increasing importance of new global players, it argues for a rebalancing of global responsibilities and representation. "As the number of influential countries grows, it becomes all the more important to establish a mechanism for coordinating their policies," said the report. At $3.2 trillion, China's economy is now about 20 percent the size of the US economy. India's economy is approaching $1 trillion, it noted. By mid-2007, reserves held by central banks were about $4.5 billion, with China's alone at $1.6 trillion and rising. At the same time, US savings rates are low, while China's reserve accumulations are continuing at the same pace, and its trade surplus is rising rapidly. Currencies that track the dollar have largely accompanied the American currency on its descent, in defiance of their underlying fundamentals. Several markets have become more opaque and difficult to regulate as the current credit crisis in the US and Europe illustrates, says the report. The responsibilities of central banks "now extend well beyond inflation to credit crunches, growth slowdowns, asset bubbles, and, in some cases, exchange rates", it says. "It is clear to most observers that the global economy has outrun our capacity to manage it," the report says. "This creates risks for developing countries in particular, because they are most vulnerable to sudden stoppages of credit, and sudden switches of international demand or supply." Just as the credit crunch is affecting advanced economies, the report also stresses the importance of a strong financial system in developing countries and argues for careful supervision of the banking sector to prevent banks expanding credit too far, and the removal of capital controls only in step with the financial market's maturity. An international institution that gave emerging economies their due would monitor the financial system for financial strains, imbalances, and fragilities, allowing it to act early to reduce the chances of abrupt adjustments, and to "muster a timely and coordinated response to those crises it failed to anticipate, such as rising food prices", it says. The report also suggests that all developing countries cannot grow as fast as the fastest growing economies without causing global greenhouse gases to spiral out of control unless technology and new techniques are used to "radically" reduce the amount of energy needed to produce goods, as well as cut carbon dioxide emissions. "That is the only way developing countries can grow rapidly without subjecting the world to potentially catastrophic global warming," it adds. Climate models suggest coastal erosion from global warming may threaten more than one million people by 2050 in the Nile delta in Egypt, the Mekong delta in Vietnam, and the Ganges-Brahmaputra delta in Bangladesh, notes the report. It adds that fast-growing developing countries like China and India that generate a lot of carbon dioxide must take part in efforts to mitigate global warming if the world is to succeed. However, they are resisting, partly because committing to cut emissions might threaten their growth, and partly because they consider such commitments unfair as high-income countries have generated most of the carbon dioxide in the atmosphere. The report says that uncertainties about the impact of climate change and the cost of cutting carbon will be resolved over time. The world, therefore, should not lock itself into precise, quantitative commitments for the far-flung future. "It should anticipate that information will improve - and leave some options open."
Source: IANS
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