India asks rich nations to heal financial markets

Tuesday, 23 October 2007, 07:00 Hrs
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Washington: India wants world's rich nations to quickly restore normalcy in financial markets because they face more uncertainty in 2008 with turbulence spreading from its epicentre in the U.S. to Europe.

While "China and India continue to remain the engines of global growth" the downside risks have increased with market turbulence spreading to Europe, Finance Minister P. Chidambaram said here Monday.

"We urge the advanced economies to take appropriate measures to restore full normalcy in financial markets and share with the world what they intend to do," he told the annual meeting of the World Bank and the International Monetary Fund (IMF) here.

Besides unfolding financial market risks, "global imbalances, supply-side inflationary pressures and protectionism continue to pose risks to growth. Oil and food prices have spiralled," Chidambaram noted.

As food comprises a large share of the consumption basket in developing countries, high food prices have political and social ramifications, apart from triggering inflation, he said, asking all nations to show greater vigil and get ready to respond with both short and medium term measures.

Chidambaram's plea found an echo in IMF Managing Director Rodrigo Rato's warning that an "earthquake" in credit markets sparked by rising defaults in the US mortgage market could tip the global economy into recession, ending a five-year boom.

The credit market strains had exposed weaknesses in the world's financial infrastructure that needed to be addressed, he said, noting that emerging economies, led by fast-growing countries such as India and China, had become a source of stability.

An abrupt fall in the US dollar could also tip emerging economies that have relied on external financing to fund large current account deficits into crisis by a combination of reduced demand for their exports and tighter credit conditions, Rato said.

Chidambaram also demanded a new formula to give greater voice to emerging economies in the IMF. A meaningful transfer of shares from developed to developing countries was possible only if GDP (gross domestic product) was computed on PPP (purchasing power parity) terms, he pointed out.

But "we are willing to consider a blended GDP as a measure of compromise, so long as the outcome meets our basic objectives," he said, urging redoubled efforts to search for the elusive formula before the next meeting in April 2008.

US Treasury Secretary Henry Paulson agreed that emerging economies such as China, India and Russia should get a greater share of representation in the two institutions as financial soundness increasingly depended on them.

"Emerging markets as a whole are growing twice as fast as industrial economies, and account for a rising share of global trade and investment," he said, noting that "China, India and Russia presently account for half of global growth.

"Such realities need to be reflected in international financial and economic institutions, both in the focus of their work, and in their governance structures," Paulson said.

The US believed it was time to "ask emerging markets to take on greater responsibility in the international financial system" and it was fair for them to ask for a greater share in IMF representation, he said.

However, Paulson did not say anything about Chidambaram's other demand that the next heads of the two financial institutions be selected through a transparent process from among the best talent available in any part of the world. Traditionally, these jobs have gone to the US and Europe.

In other remarks, Chidambaram welcomed the steps taken by the World Bank to reposition itself as an aid institution and a knowledge bank and those to strengthen the engagement of International Bank for Reconstruction and Development (IBRD) with partner countries, especially on pricing reforms.

However, further action was needed to reduce IBRD's non-financial costs, he said, asking the Bank to commit itself to greater use of country systems and take concrete action to ensure that this commitment percolated to operational levels.

Again, the Bank's "special focus on climate change" should not distort the hierarchy of developmental needs of low-income countries, Chidambaram held.

Orderly international labour mobility, technology transfer, intellectual property rights, affordable medicines, stolen assets recovery, and portability of social security were some Global Public Goods (GPGs) that were more relevant for developing countries and should not be crowded out, he said.

"While welcoming the Bank's initiatives on clean energy, we need to remind ourselves that access to affordable energy is a major challenge: 675 million South Asians live without such access," he said, even as he reiterated India' s commitment to addressing climate change.

The coordinating role of International Development Association (IDA) can be more effective with increased IDA funding, the finance minister said, urging the donor countries to honour their commitments. "Let us match our words with action for a world free of poverty."
Source: IANS
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