Chidambaram voices disappointment over IMF delay on quota reform
India has urged the United States and other advanced economies to carefully calibrate their plans to cut economic stimulus, given the global impact of such moves at a time when recovery across the world is still fragile.
Advancing the Indian concerns, Finance Minister P. Chidambaram told the IMF-World Bank annual meetings here that any exit from the “unconventional monetary policies” should be orderly and guided by multilateral dialogue.
The comments by India and other countries came against the backdrop of disruptions in recent months triggered by the US Federal Reserve’s talk of tapering of the mammoth American economic stimulus programme.
Reflecting the extensive concern on this score, the IMF’s top decision-making panel also stressed that the rich nations should see to it that any switch from “accommodative monetary policies” is “well-timed, carefully calibrated and clearly communicated”.
“Given the risks involved in the exit from the unconventional monetary policies, there is a need to communicate clearly to market participants the parameters that will guide the exit,” Chidambaram said, noting that central banks in the advanced economies should take into account the spillover effects of such exit on the global economy.
“The global recovery is as yet fragile. Hence, it needs to be ensured that it is nurtured and put on a sustainable path through appropriate policy actions, both in advanced and emerging market economies,” he said, adding: “Dialogue, cooperation and effective communication, on a multilateral basis, would be important in ensuring this.”
He acknowledged that emerging market economies also need to strengthen their domestic fundamentals and be prepared with appropriate policy responses in different scenarios to meet the challenge arising out of such monetary policy unwinding. He also agreed that the emerging economies should implement structural reforms in the growth critical areas.
In his intervention at the International Monetary and Financial Committee plenary, Chidambaram also voiced his disappointment with IMF’s delay on governance and quota reforms.
“Why does this problem remain with us in meeting after meetingIJ We are disappointed that the deadline for the 2010 Quota and Governance Reform of the Fund has not been met,” he said, adding: “Also, there is no clarity, even after the passage of a year, as to when this will be finally achieved.”
“Please do not forget that the IMF is essentially a quota-based organisation,” he said, pointing out that the delay in ratification of the 14th Quota Review would only mean that the reliance on borrowed resources will increase, something that was not desirable. He told the panel that “governance and quota reforms are imperative to ensure the Fund’s credibility, legitimacy and effectiveness”.
Chidambaram also pointedly brought up an issue that has riled him since his arrival in Washington, namely IMF’s slashing of India’s 2013 growth projection to 3.8 per cent from 5.6 per cent, announced by the Fund just three months ago.
“I would like to ask, respectfully, what is the information that IMF has gathered between July and September, that we do not have, that has impelled the Fund to drastically change the estimateIJ We do not share this pessimistic outlook,” he said, stressing a review of IMF’s methodology on this score since its past projections have “often been at divergence with final growth numbers”.
While conceding that the Indian economy has suffered from a “significant downturn this year”, he listed the steps taken to put the economy on a sustainable growth path, ease supply constraints and improve the investment climate. He said the Government was committed to bring down the fiscal deficit to 3 per cent by 2016-17.