India has expressed deep disappointment over the non-implementation of IMF quota and governance reforms that would give it a greater say in the global crisis lender, matching the country’s growing economic might.
“We are greatly disappointed that the 2010 Quota and Governance Reforms have not become effective in spite of the strong support of the global community for the reform,” Finance Minister Arun Jaitley said yesterday in his address to the International Monetary and Financial Committee.
“We are also concerned that we have not made any headway in the forward looking elements of the 15th Review, including the review of the quota formula and the initiation of the discussions on the Review,” he said.
Arun Jaitley said governance reforms are required to ensure the International Monetary Fund’s credibility, legitimacy and effectiveness.
“They are also most imperative to maintain its relevance. They, therefore, should not be deferred indefinitely,” the Minister said, urging the members who have not yet ratified the 2010 Quota and Governance Reforms to do so at the earliest.
The IMF quota reforms seek to provide greater say to emerging economies like India and China at the Fund, where the US and large European countries command high influence.
The 2010 reforms were originally propelled by Washington, and the President Barack Obama’s White House has repeatedly endorsed them. But the US Congress has refused to sign off on the deal, with some legislators not wanting to contribute more money to the IMF and others concerned about any erosion to the dominant US role at the fund.
In the interregnum, the IMF Executive Board should work expeditiously to complete its work to make meaningful progress in the key areas covered by the 2010 Quota and Governance Reforms pending their full implementation, Jaitley said.
“Among the options being considered, we believe that the delinking option remains the most desirable option since it is the nearest in form and substance to the 2010 reform package,” he said.
The ad hoc option would reduce the incentive to implement the reforms in full, he said, adding it is important to begin work in earnest on the 15th Review so that it can be completed by December 15, 2015.
“The continuance of such momentum in the IMF governance and quota reforms is essential to maintain the effectiveness, credibility and relevance of the IMF as a multilateral quota based institution, which reflects adequately changes in the global economy in a dynamic framework,” he said.
In his address Jaitley said many emerging market economies have benefited from the sharp decline in oil prices, saying it provides a window to implement energy reforms, phase out subsidies and build fiscal buffers wherever macroeconomic conditions permit.
“A major challenge for emerging market economies is to raise growth by implementing growth critical structural reforms. The focus, in general, should be on encouraging infrastructure investment, strengthening the investment climate and improving human resource skills through education and training,” Jaitley said.
The Finance Minister said despite being supported by a sharp decline in commodity prices, especially oil, and continuing accommodative monetary policy by central banks in the major advanced economies, global growth remains modest.
Among the major advanced economies, recovery seems to have taken a firm hold in the US. The economic activity in the US is stronger than expected, and indicators point to robust growth in the short term, he said.
“The global recovery continues to be weak. Although recovery in the US has taken a firm hold, weak growth in the euro area and Japan and slowdown in growth in most major emerging market economies have impacted the overall global growth prospects,” he said.
The Finance Minister said that at this juncture the global economy is facing some major challenges.
“First, potential growth has declined in both the advanced and emerging market economies and needs to be raised. Second, uncertainty continues about the smooth exit from the unconventional monetary policies (UMPs) by central banks in the major advanced economies,” he said.
“As a consequence, global financial stability risks have exacerbated in the wake of prolonged period of low interest rates,” he said.
“It is in this context that we need to review the evolving global macroeconomic situation and financial market conditions so that appropriate policy responses could be initiated by the policymakers in both the advanced economies and emerging market economies,” Jaitley said.