The Hindu : Lack of concern

Online edition of India's National Newspaper
Wednesday, Oct 02, 2002

Opinion

Opinion - Editorials

Lack of concern

THE 2002 ANNUAL meetings of the International Monetary Fund and the World Bank will be remembered more for what the world's Finance Ministers and central bank governors did not address than for the issues they discussed and the decisions they took in Washington last week. For once, anti-globalisation protesters did not take the limelight during a global economic meeting. But the annual meetings were not the better for the absence of large-scale protests on the streets.

The only significant decision taken at the meetings was to accelerate work on the IMF's proposal for a Sovereign Debt Restructuring Mechanism, which, if approved, would permit Governments to reschedule their debt to international private capital during a crisis. The IMF has been having a running battle with the U.S. on this proposal, since the latter has been more interested in the alternative of "collective action clauses" written into contracts between Governments and their foreign lenders. While no one disputes the need for a different kind of mechanism to deal with financial crises involving Governments and global capital, that is not the only or main challenge confronting the world economy today. The Washington meetings took place at a time when world economic growth has markedly slowed and the prospect is of a further slowdown in the light of deflationary pressures across the world and uncertainty about the future course of world oil prices. Besides, a huge chunk of the global economy that is centred in South America is caught in a quagmire. Argentina, a former poster-country for the IMF, is slipping from bad to worse and on the eve of the IMF-World Bank meetings it announced that it would default on the debt obligations that were going to fall due later this year. And the Brazilian economy continued to be pushed to the edge for no fault other than that the global markets were worried about the outcome of the presidential elections this month. In spite of all these challenges and problems, the International Monetary and Financial Committee, the policy-making body of the IMF, was not unduly worried about the slowdown. It seemed quite confident that world economic growth would revive in the near term. Issues of development suffered a similar fate at the annual meetings. The World Bank tried to raise anew the shortage of resources for meeting the millennium development goals for 2015, but the appeal fell on deaf ears. It is now more than apparent that the goals of halving poverty, reducing maternal and child mortality, lowering illiteracy rates will not be met by the target date. The Finance Ministers of the advanced economies were also told that the much-touted debt forgiveness initiative for the world's poorest countries was $ one billion short of resources. The Ministers promised to meet the shortfall, but the proof of their intentions will be in an actual inflow of resources. Both the IMF and the World Bank reiterated once again that many of the problems of the developing countries could be solved if the developed world reduced its subsidies to agriculture and opened its markets to labour-intensive exports. This focus on trade barriers is a relatively new strategy of the multilateral financial organisations, but while the IMFC endorsed these arguments they have not found favour at the forums where the decisions are taken. At the World Trade Organisation, the notion of "a development round" is increasingly looking frayed and the U.S. Trade Representative has been less than respectful of the IMF-WB recommendations on trade.

India emerged in a less than favourable light from the annual meetings. Gone were the glowing observations of recent years about India (and China) being among the fastest growing economies of the world. Instead, the special mention that India received at the IMF-WB meetings was that it now ran among the largest fiscal deficits in the world and that this along with the domestic debt-GDP ratio of 60 per cent was a major obstacle to accelerating growth.

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