Indian Finance Minister Pranab Mukherjee did not mince his words in Washington this week, as he made a forceful argument linking the continuing weakness of global economic growth to the need for BRICS to play a greater role in and alongside multilateral lenders such as the International Monetary Fund.
In his address to the G-24 Finance Ministers meeting Mr. Mukherjee said that many of the leaders gathered here represented the voice of the masses of the poor and vulnerable populations who were adversely affected by the lack of jobs, infrastructure, food and finance.
“The role of the International Financial Institutions today deserves to be viewed in this light,” Mr. Mukherjee noted, adding that there were “serious apprehensions regarding the governance structure of these IFIs, adequacy of their resources as well the flexibility of their lending procedures.”
Reflecting on the growing consensus around setting up a BRICS Development Bank, Mr. Mukherjee noted that the apprehensions about institutions such as the IMF have strengthened the trend of setting up new and regional financial mechanisms and institutions where the voice of these nations are heard, and adequate finance is forthcoming.
His comments come in the wake of efforts by the IMF and European authorities to raise funds for the so-called European zone “firewall.” In this regard Mr. Mukherjee noted that in the IMF’s assessment the global firewall faced a shortfall of $1.1 trillion.
Urging BRICS nations to carefully consider whether to join this effort, Mr. Mukherjee said that the IMF and European countries had approached the International Monetary and Financial Committee members for additional resources. “We need to take a view on whether such an important matter needs to be rushed through and if we should not insist that adequate time be provided to us to take a decision in the above regard,” he cautioned.
Mr. Mukherjee exhorted the BRICS group to focus its attention on the question of internal reform at the IMF. He said, “There is also the matter of disappointing progress in discussions on the Quota Formula and other aspects of IMF Governance Reforms. We must consider whether a strong message needs to be sent on the need to move quickly with Governance Reforms and discussions on the Quota Formulas.”
In a press conference on the sidelines of the G-24 meeting Mr. Mukherjee touched upon IMF quota and governance reforms further, saying that the forward looking commitments on such reform “must be met on a full and timely basis... but [the IMF] should remain a quota based institution.”
He did not spare the World Bank from criticism either, adding that BRICS were particularly concerned that World Bank lending was projected to decline at this crucial juncture because of constrained financial capacity.
Calling on the Bank to improve its responsiveness through more flexible and innovative policies and instruments, Mr. Mukherjee remarked, “We recognise for the first time in the history of the Bank that there was an open process for the selection of the President and that two outstanding candidates from developing countries were presented.”
Noting that at the global level economic conditions overall “remain weak, downside risks remain significant and unemployment at politically unacceptable levels,” the Minister however exuded confidence that India would post real GDP growth in 2011-12 of seven per cent.
“We are reasonably confident that the underlying growth fundamentals remain firm. We are intent on ensuring that the process of fiscal consolidation gains further momentum, with monetary policy remaining vigilant in dealing with inflationary pressures,” he said.