November 5, 2011 12:37:42 am
India and other emerging economies have seized the opportunity created by the unprecedented demand from the developed world for flexible IMF loans to push for the reform and increased democratisation of the world body.
According to official sources,in a pull-aside at the G20 summit here on Thursday,the BRICS heads of governments could reach a consensus that any multilateral support from the BRICS to the proposed euro zone bailout package for Greece must be routed through the IMF.
The common BRICS view on modernising the IMF and multiplying its free resources was despite the possibility that China,the largest exporter to EU,might lend directly to the regions rescue fund EFSF though such a measure obviously entails greater risk (you arent lending to a sovereign but a special vehicle).
The BRICS leaders felt that for the IMF to be able to shoulder its increased responsibility in a changed world,it ought to be strengthened with additional ways to find resources for helping the newer set of countries (developed ones) experiencing balance of payment problems and a further shift in quotas to the emerging economies. There could also be changes in the Washington-headquartered Funds supposedly old-fashioned funding conditions given the severe liquidity constraints faced by many developed countries,Planning Commission deputy chairman Montek Singh Ahluwalia told reporters after Thursdays BRICS meeting.
According to Ahluwalia,the leaders of BRICS countries (Brazil,Russia,India,China and South Africa) appreciated the need for IMF to open new (flexible) credit lines for liquidity starved European countries,but they wanted the Funds future assistance to emerging market economies to be similarly structured. (In the changed scenario),we do want the IMF to keep in mind the needs of developing countries,many or which might be hit unintentionally.
He said that lending to the euro zone countries through the IMF could even be viewed as good investments. These are borrowed funds/interest-bearing loans,not grants, he said,adding,from an investors perspective,IMF assets could be more attractive than the US treasury bills at present.
IMF,he said,ought not to be viewed as a development financial institution but a provider of liquidity to countries it reckons are solvent. When the market perceives a sovereign as insolvent,the IMF will have to make an assessment of its own and might bet on the countrys solvency. Given the possible spillover effects of the crisis in the euro zone,it is IMFs job to do surveillance of the situation, he said.
Ahluwalia said a key weakness of the euro zone was that the currency bloc was not a fiscal union. The euro zone countries,he said,were willing to take legally binding commitments in a couple of years to force themselves to have balanced budgets.
Last Novembers G20 Seoul Summit announced a 6 per cent shift of quota shares to emerging economies in the Fund as part of package of IMFs governance reforms. It was also decided then that the dynamic process of enhancing the voice of emerging markets and developing countries would be continued and the next general review of the quotas would be completed by January 2014.
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