The deal to reform the International Monetary Fund (IMF) to give greater clout to developing nations like India and halt aggravation of the ongoing currency war was struck at the last moment at the conference of G-20 Finance Ministers and Central Bank governors here on Saturday.
The uncertainty continued till the last minute and it was only in the early hours that officials, after intensive overnight negotiations, managed to put together a communique that was acceptable to all 20 countries.
“Till this [Saturday] morning, the situation was really uncertain. It was clinched in the meeting of the G-7 and the BRIC (Brazil, Russia, India and China) Finance Ministers,” Union Finance Minister Pranab Mukherjee told journalists.
The differences persisted mainly over ways to deal with the ongoing currency crisis.
According to officials, nothing was achieved in the first session of the two-day conference that began on October 22, as differences between the developed and emerging nations continued.
However, during the intervening sessions, the BRIC Finance Ministers, who have emerged as an important pressure group advocating the cause of emerging economies, met and decided to extract the maximum that they could and conclude the deal.
“In between [the two sessions], the BRIC Finance Ministers met. Ultimately, when we resumed, it was decided we will have... [the deal],” Mr. Mukherjee said.
Officials involved in the negotiations said that talks continued for the whole night and the draft was redone several times before the communique, reflecting the collective views of the G-20 members, was given a final shape.
Market-determined exchange rates
The communique spelt out a decision to give more voting power (quota share of 6 per cent) to emerging nations in the IMF, while asking nations to move towards “more” market-determined exchange rates and desist from “competitive devaluation” of currencies.
It reflected the viewpoints of both the U.S. as well as China on the currency issue. The U.S. wants China to appreciate its currency, the yuan, in line with market realities, a move that is being resisted by the Chinese government as it might hurt exports.
Seeing no end to the currency war in sight, some other countries, including Japan, decided to devalue their currency.
The communique, a carefully negotiated document, incorporated the U.S. point of view by asking countries to move towards “more market-determined exchange rate systems that reflect underlying economic fundamentals.”
Developed countries, including the U.S, have been advised to “pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances.”
For countries like India, which are suffering on account of appreciation of their currencies, the communique asked nations to “refrain from competitive devaluation of currencies.”
The developments prompted Mr. Mukherjee to say, “what we have achieved is significant.” The decisions will be followed up at the G-20 summit to be held in South Korea from November 11 to 12 and the next meeting of the Finance Ministers and Central Bank governors at Paris in February, 2011.