This sense was conveyed by a member of the Indian delegation after the conclusion of the meeting of the development committee on Monday. The reference was to the hardline America was adopting on matters like increasing the voting share and voice of developing countries in the two Bretton Woods institutions and also on exchange rate flexibility.
On the exchange rate front, the US has been exerting tremendous pressure on the IMF to force China to move towards greater exchange rate flexibility. This issue even brought to fore differences within the Group of Seven as its statement avoided direct criticism of the Asian dragon. The IMF for its part also held the course and resisted US pressure on this account.
The Funds outgoing chief economist Kenneth Rogoff told FE the view that there was a link between the Chinese yuan and the US current account deficit was sheer nonsense.
According to him, the main point was that the US current account deficit, growing since the late 1970s to existing levels of $481 billion last year, was unsustainable. When it begins to wind down, there is a prospect of a sharp devaluation of the dollar as foreigners become unwilling to fund Americas voracious appetite for goods and services. The need was to spread the burden of adjustment more widely over the next 2-4 years, with flexible exchange rates being only one of these adjustments. The others include improvements in the US savings rate, argued Rogoff.
This is where Reserve Bank of India governor YV Venugopal Reddys speech in the annual meetings on Tuesday assumes significance. If it is China today, it could be India tomorrow that might be the focus of international pressure. To take care of such eventualities, he outlined an analytical scheme that seeks to provide greater assurance to emerging economies from the risk of external shocks. That the build up of reserves by some of them reflects the lack of confidence in the international financial architecture; that it was needed to correct volatility in forex markets as there was no self-corrective mechanisms and so on.
The hardening of US attitudes also has been felt in matters of enhancing the voting shares and participation of developing countries in the IMF and World Bank. Unlike the WTO where 148 members have a equal voice and vote, this is not so in the Bretton Woods institutions where the votes are weighted disproportionately in favour of the US. In the IMF, America has the single largest voting share of 17 per cent. Indias share is 1.93 per cent while that of China is 2.95, all of which is in direct proportion to the subscription quotas.
While various suggestions including a trust fund to improve the vote and voice of developing countries are in the air, one of them to realign this in line with share of global GDP in purchasing power parity terms will no doubt benefit India and China. But the US too would gain in this process! India maintained a diplomatic silence on this matter when such an implication became clear. There was to be a roadmap sometime in 2004 to go forward on this matter, but when the matter came up for discussion, US pooh-poohed this idea. What roadmap, it queried! Almost similar in spirit to USTR Robert Zoellicks recent statement that the US is in no mood to wait for WTO members in moving towards free trade.