Sinha for appropriate reforms in IMF

By Sridhar Krishnaswami

WASHINGTON, APRIL 16. While it was heartening that the global economic and financial conditions had improved during last year, there were several disquieting factors that could adversely affect the global outlook, the Finance Minister, Mr. Yashwant Sinha, has said. In a statement to the International Monetary and Financial Committee of the International Monetary Fund, he listed at least two factors that may affect the global economic outlook. First, the sharp decline in global demand induced by a turnaround in equity markets that could have adverse consequences for sustained growth. Secondly, the unbalanced pattern of growth among the major developed nations - the U.S., Europe and Japan in particular - has resulted in current account imbalances and currency alignments that appear difficult to sustain.

But despite these concerns, Mr. Sinha said India had posted a growth of about six per cent in 1999-2000 and was likely to grow by over seven per cent this financial year. ``It is noteworthy that strong growth in India was accompanied by remarkably subdued inflation and comfortable balance of payments. India's external reserves are presently at the highest level ever. At the same time India has reduced its short term debt sharply which now constitutes a very small proportion of the country's external liabilities.''

At a time when there is a debate both within the international financial institutions and outside on both the challenges and in the kind of reforms required, Mr. Sinha said an appropriate reform of the IMF was needed to ensure its continued relevance and that this called for strengthening its role in three basic dimensions.

First, as an international credit cooperative serving a universal membership with impartial macro-economic policy advice; second, as an overseer of the international monetary and financial system through effective bilateral and multilateral surveillance; and third, as an institution that supported the structural reforms, high quality growth and poverty alleviation in the developing economies. Mr. Sinha maintained that while ``house cleaning'' and ``renovation'' of the Fund facilities are desirable it was easy to exaggerate the complications arising out of the proliferation of facilities. ``...due consideration needs to be given to the diverse requirements of the Fund membership. In the name of housekeeping we must not lock the doors.'' With protesters vowing to shut down the Spring Session of the World Bank and the IMF, the formal meetings of the latter - both the Group of Ten and the International Monetary and Financial Committee - began this morning on time. Among the themes addressed by Mr. Sinha at the IMFC was the optimal number, design and composition of the Fund's facilities ought to be governed by at least three principles: period review with a view to assessing continued relevance; adding new facilities in the context of greater trade and financial integration; and any conditionality being consistent with the underlying purpose of the scheme.

Stressing the need to be on guard against the trend of over- regulation under the rubric of centralised supervision, Mr. Sinha noted ``there is a distinct possibility that integrating the assessment of observance and standards and codes formally into the surveillance process could easily degenerate into categorising countries as performers and non-performers.''

He welcomed the progress made on both the HIPC Initiative and on poverty reduction and growth strategies as also in welcoming the progress in obtaining bilateral contributions and in completing nearly all the off-market gold transactions.

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Section  : International
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