The Annual meeting of the World Bank and the International Monetary Fund (IMF) begins in Washington this week. As is customary, the Union finance minister, the governor of the Reserve Bank of India and their aides will participate. Chidambaram?s predecessor had no appetite for the Fund-Bank jamboree and gave both the Spring and the Annual meeting either a miss, or registered a token presence. It is true that in an increasingly interdependent world, with most developing countries adopting market-friendly policies, access to global capital markets has replaced the pre-eminent position of the Bank and the Fund?s resources have proved increasingly meagre to meet the financing needs of countries in distress. The heady days of the Fund and Bank have vanished for another reason. In the earlier days, Annual Meetings used to be a week-long affair, providing an opportunity for finance ministers to get to know each other and permitting over-dressed merchant bankers to zip in and out of ministers? rooms in search of business. The anti-globalisation protestors and subsequent security concerns have pared these events down to a bare two days making these meetings more of a formality than an event. So what should India try to get out of the coming Fund-Bank meeting?
First, with stable macro-fundamentals and a healthy external sector, we can afford to pontificate and lecture to others on how to avoid a crisis and how to get out of one with shallow conditionalities. Our unutilized head-room of borrowing from the World Bank is still very large. However, there are some issues which deserve our attention.
The millennium development goals subscribed by the international community remain grossly unrealised. There is a compelling case to increase Overseas Development Assistance (ODA) to address these needs. Excuses such as increased trade flows, increased workers? remittances, or access to world capital markets, should not enable countries to either resile from earlier commitments, or desist from making new ones.
Two, the resources of Inter-national Development Assist-ance (popularly known as IDA) remain rather meagre, as we move from the XIII to the XIV replenishment cycle. Attempts to cap India?s access at modest levels or, worse, to graduate us out IDA resources must be firmly resisted. Given our population, the number of people living below the poverty line still remains very large. India clearly qualifies to receive IDA resources and we can assure the international community, that given our improved disbursement procedures, the head-room for IBRD/IDA, or a blend that is available, would be more fully utilised.
The proposal put forward for an International Financing Facility, in which, based on securitisation of future aid flows, a larger quantum of market borrowing can be undertaken in the short and the medium-term, must be encouraged. It will enable us to secure upfront financing for high-quality infrastructure projects. Even as, over the years, the cost of borrowing from the Bank has been moderated, there is scope for reducing this further and of harmonising these across the international lending agencies and large bilateral donors. There is a case for further moderating the cost of IBRD resources and aligning the Ordinary Capital Resources (OCR) of ADB and donors like Japan to meet these revised benchmarks.
In the earlier government, a somewhat hasty decision was taken to terminate all bilateral aid flows, except from some countries like the US, Japan, UK and Germany. This may have been part of a short-lived ?economic machoism,? in which we suddenly took pride in being donors rather than recipients. We have for decades happily lived in an asymmetric world of being both, donors and recipients, and there is no inherent contradiction between these two!
On the issue of restructuring the share-holding structure of Bank & Fund, based on economic performance and the new permutation and weightages to be adopted, several proposals have been doing the round for a decade. It is not clear if India would gain in any of the proposed arrangements. We need to move with caution and live with the existing structure till a clear and preferred alternative emerges.
The World Bank?s record in India of spreading access to its resources in an equitable manner has been less than glorious. Seven States have taken 75% of the resources.
The argument that better-performing states need to be rewarded can cut both ways. The real success lies in inducing the poorly-performing States to improve their development and governance record, so that access to external assistance does not become yet another factor in widening regional disparities. Six states, namely Bih-ar, Uttar Pradesh, Jharkhand, Chhatisgarh, Orissa and Madhya Pradesh, account for over 60% of the population below the poverty line. If India is going to achieve the primary Millennium Development Goals of halving the proportion of population living below the poverty line by 2015, the focus of development efforts will have to shift to these states.
The IMF and the World Bank have not lost their relevance to us. The annual Article IV Cons-ultations of the IMF are a useful independent exercise, focusing on our strength and weaknesses, along with advanced warning systems. The resources of the IDA and the IBRD are useful in supplementing resources for the social sector, as are the long-term loans of the IBRD in financing high-gestation projects in infrastructure particularly power, roads, ports and railways.
Restructuring of the international financial architecture has gone on the back-burner, as the Fund has become more conscious in the application of its conditionalities and the office of the Independent Evaluator brought in greater objectivity in evaluating Fund programmes. The sheen may have gone off the Fund and the Bank, but the world and India still needs them. In accessing the Bank?s resources, we can also shape their perceptions to meet our changing needs and work out arrangements which are acceptable to both, borrower and lender. Our economic success, coupled with our optimism of the future, enables us to do so. The Bank needs us as much, if not more, than we need the Bank. Chidambaram has a doable brief.