The Hindu Business Line : Fund of politics

If proof were needed that politics influences economics often in overt ways, it was provided in Singapore where the World Bank-IMF meetings, last weekend, engaged in reform of the multilateral institutions. A part of a process that began last year ostensibly to reflect emerging countries' interests and greater representation within the IMF to tackle the `democratic deficit', the Singapore meetings showed the dominant interest of the rich in the real working of the Bretton Woods twins. Clearly, the leadership of both entities wants to expand the charter to allow the rich countries to actively influence the fortunes of developing nations in ways not done before. This is evident in the reforms that were put to vote in Singapore, some carried through with majority votes.

The process began with what the IMF managing director, in April, called the `grand bargain.' The Fund, he suggested, should go beyond `bilateral processes', which from a borrowing nation's perspective often meant the imposition of unacceptable `conditionalities' to a loan agreement, to `multilateral processes' that has the ring of a softer and a more `Third-World-friendly' side to the IMF. In Singapore, it was resolved to hike the borrowing and voting rights (quotas) of China and some other countries. At first glance this is welcome as it reflects the IMF's anxiety to be less Euro-centric, but then why was the `quota' for India, the other growing economy, reduced? And why were the quotas for smaller, African countries not enhanced? Clearly, the IMF power structure has not changed perceptibly except for China's enhanced role and that has been at the behest of the US, which wants to be close to the fastest growing economy in order to influence it. Despite American pressures, the Chinese have refused to revalue their currency against the dollar and the inclusion now is part of that process to arm-twist Beijing. And what more can reflect the political nature of the reforms than the fact that 90 per cent of the total voting power favoured the change, with India leading 9 per cent of the votes against it.

The World Bank meeting voted for a new anti-corruption criterion that is equally motivated. A strategy that a priori determines which borrower-government is corrupt exposes the Bank, as India protested, to the risk of predetermining development needs on the basis of governance. It is one thing for the Bank to put in place more effective accountability standards to prevent funds being siphoned off by corrupt leaders but quite another to use bad governance to decide which country gets what development programmes. Clearly, this can lend itself to arbitrary choices at best, and lead to throwing the baby with the bathwater at worst. To its credit, India opposed the `reforms' tooth and nail but to no avail; policymakers will return home with the lesson that the Bretton Woods twins are truly the offsprings of the rich nations.

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