India to invest up to USD 10 bn to supplement IMF resources

As part of efforts to have a greater say in the running of the international financial institutions, India has decided to invest up to USD 10 billion from its reserves to supplement the IMF resources.

"India has decided to invest up to 10 billion dollars of its reserves in notes issued by the IMF," Finance Minister Pranab Mukherjee told reporters at London on Friday night after the BRIC (Brazil, Russia, India and China) ministerial meeting ahead of a G-20 conference.

Mukherjee said "the G-20 egged governments on to adopt an aggressive monetary and fiscal stance, and was particularly successful in raising reforms for International Financial Institutions that played a major role in stabilising developing country markets.

The communique issued at the end of the BRIC Finance Ministers' meeting said "for us, IMF notes or bonds are the best option to provide immediate resources to the IMF without undermining the quota reform process.

"We are together contributing USD 80 billion to supplement the resources of the IMF. The IMF is a quota-based institution and should remain so. We propose that the next quota review should at least double the overall size of quotas."



China accounts for USD 50 billion of the USD 80 billion contribution and the rest would be borne by India, Russia and Brazil.

Brazil's Finance Minister Guido Mantega told newsmen that the BRIC countries would like to have a greater say in the running of the IMF and other international financial institutions such as the World Bank and are prepared to have a larger share of quotas and voting.

US Treasury Secretary Timothy Geithner joined part of the meeting, which Mukherjee said was an acknowledgement of the group's emergence as a key voice in global economic and financial issues.

Need to regulate financial market but no protectionism: Pranab

India has said when there is a need to regulate the financial market; the same should not be used to devise any kind of protectionism.

"We shall have to strike a balance. First of all, I would like to... in the name of the financial regulation and to regulate the markets and as I started off, I mentioned protectionism need not come. Yes, there is a need of regulating the financial market," Finance Minister Pranab Mukherjee said in an interview to a news channel at Washington.

"At the other side of the picture, these instruments need not be used to devise protectionism in some forms. Therefore, there too, we shall have to keep in view the federal reserves -- the larger social interests -- interests of the society as a whole, not fragmented and fractured internally," he said.

Noting that there is no consensus among major economies on the lessons learnt from the current global economic crisis, Mukherjee said: "But if we look at the way G-20 responded and we have ourselves been made to address only those issues where there is the possibility of consensus."

The Finance Minister felt that G-20 should not pick up those issues where consensus is elusive.



"That there should not be, in the name of financial agreement...it should not be too much constructionist policies in the grab of another form of protectionism," he said.



Responding to a question, Mukherjee said India shall have to come back to the fiscal conservatism.



"That's why in my medium term plan, I have indicated that I am ending the year with a 6.8 percent of fiscal... but I will come around to 5.5 and four percent in the next two years," he said.

Russia, China, Brazil endorse India's stand on protectionism

India's stand that protectionism remains a real threat to the global economy and emerging economies need to guard against tendencies in some developed nations to extend it beyond trade to financial markets and investment has been endorsed by Russia, China and Brazil.

A joint communique issued at the end of the two-hour meeting of the BRIC (Brazil, Russia, India, China) countries'

Finance Ministers on Friday evening asserted that "protectionism remains a real threat to the global economy and

should be avoided, both in direct and indirect forms."



Addressing a press conference along with his counterparts from Brazil, China and Russia, Finance Minister Pranab Mukherjee said that "emerging markets also need to guard against tendencies in some developed countries to extend protectionism beyond trade to financial markets and

investment."



He said it could "collectively undermine not only growth in developing countries but also the hard earned welfare gains from globalisation."



The communique also emphasised that the reform of international financial institutions is crucial to ensuring a stable and balanced global economy.



"For the IMF and the World Bank Group, the main governance problem, which severely undermines their legitimacy, is the unfair distribution of quotas, shares and voting power. Priority should be given to a substantial shift of quotas and shares in favour of emerging markets and

developing countries," the communique said.



"We propose the setting of a target for that shift of the order of 7 per cent in the IMF and 6 per cent in the World Bank Group so as to reach an equitable distribution of voting power between advanced and developing countries," it said, adding "this would lead the overall share of emerging markets and developing countries in the IMF and World Bank to correspond roughly to their share in world GDP."



Emphasising that emerging markets were not the cause of the ongoing financial crisis as their financial systems were conservatively regulated, Mukherjee said "their growth prospects have nevertheless been badly damaged. It is particularly gratifying that BRIC countries are leading the global recovery."



Stating that he expected India to grow between 6-7 per cent in both 2009 and 2010 on the back of strong fiscal and monetary measures that saw the central bank repeatedly lowering its benchmark interest rates by 425 basis points over a short period following the Lehman debacle, he added that government has also tried to cover the fall in private demand through fiscal stimulus equipment to 3-4 per cent of the GDP

in 2008-09, and this is being carried through to 2009-10.



Mukherjee, however, cautioned that a return to earlier levels of 9 per cent trend growth in India on a sustainable

basis hinged on stabilisation of western markets.



"The recovery would be greatly assisted if international trade is kept open. In this context, we are keen for an early, successful conclusion of the stalled Doha Round," he said.



The BRIC countries expressed their support for an open and merit-based selection of IMF and World Bank management.



"The next Managing Director of the IMF and the next President of the World Bank should be elected in such a manner, irrespective of nationality or any geographical preference," the communique said.



They also supported a revision in the composition of the executive boards of the IMF and the World Bank, of the IMFC and of the Development committee to allow for a more adequate representation of the emerging markets and developing countries.