India on Tuesday asked the global community to continue with the stimulus packages as economic recovery is likely to be a long-haul and called for reforms in the IMF and the World Bank to give a bigger role to emerging economies in economic policy making.
“It appears that recovery will be unsteady and long-drawn with growth in employment lagging behind.
Maintaining policy stimulus is crucial for anchoring the recovery,” the Finance Minister, Pranab Mukherjee, said at the annual meeting of IMF-World Bank in the Turkish city.
He said balancing the stimulus against the risks of inflation and threats to fiscal viability is a key short-term challenge. “The timing and sequencing of exit strategies assume importance,” Mr. Mukherjee said.
Mr. Mukherjee was speaking as both the IMF and the World Bank began their two-day meeting looking beyond the crisis and at managing a global economic system in a way that will make it less prone to downturns.
Pointing out that there is an unfinished agenda on repairing the financial system, he said the perimeter of regulation has to be expanded.
The Finance Minister said the IMF and the World Bank cannot emerge from the crisis unchanged, adding the role of developing countries as drivers of future global economic growth needed to be recognised.
“Resistance to the overdue change will only detract from the legitimacy, credibility and effectiveness of these institutions,” he said.
Developing nations are demanding greater voting rights in both the IMF and World Bank. The G—20 nations last month agreed to shift five per cent voting share in the IMF, against the demand for seven per cent.
Mr. Mukherjee said far reaching changes to the governance structure of the international financial institutions are needed to reflect the changing dynamics of the global economy.
As a first step, the early ratification of the quota reforms for IMF is an urgent requirement, he said.
The next quota review should be completed by January 2011. “To preserve the Fund as a quota—based institution, at the minimum there should be doubling of quotas,” he said.
Parity in the vote shares of developed and developing countries would enhance the legitimacy of IMF, Mr. Mukherjee said.
“This can be achieved through a 7 to 8 per cent shift in quota shares. Even to achieve the shift of at least 5 per cent called for by the G20 leaders in Pittsburgh, we would have to work beyond the current quota formula,” the Finance Minister said.
Mr. Mukherjee said other aspects of governance reforms should follow and flow from the quota rebalancing.
The Finance Minister also highlighted the importance of six per cent shift in vote share in World Bank in favour of the developing nations.
IMF Managing Director Dominique Strauss Kahn said the quota shift in favour of developing countries will boost legitimacy of IMF. “This will be done by January 2011...and represents a significant down payment on our future effectiveness,” Kahn said.