Comments
In the aftermath of the global financial meltdown in 2008, several suggestions were rife to keep off countries from the brink of yet another ravaging crisis with the G-20 countries, including India, taking a lead in beefing up the International Monetary Fund (IMF) to make it to continue to act as a lender of the last resort in lining up multi-billion rescue packages to debt-laden countries.
Initiatives
While some of the initiatives were intended to repair a long list of well-known dysfunctions in the working of financial intermediaries that include mostly banks and quasi-banks and markets, a high-level Group of 18 former senior policy makers, including the former Reserve Bank of India Governor, Dr Y.V. Reddy, was convened by the ex-Managing Director, IMF, Mr Michel Camdessus, former General Manager of the Bank for International Settlements (BIS), Mr Alexandre Lamfalussy, and the former Minister of Italy, the late Tommaso Padoa-Schioppa. Presenting the preliminary report recently to the French President, Mr Nicolas Sarkozy, who holds the G-20 Presidency and the final report last month, Mr Camdessus modestly, but candidly, conceded that “the origin of this initiative is totally private.
Credibility at stake
“It does not commit any country. Our credibility as individuals is the only thing at stake”.
Yet, the 18 suggestions by the 18 eminent public policy experts under the rubric ranging from the need for reform, economic and financial policies, exchange rates, global liquidity, the role of the Special Drawing Rights (SDR) and governance sum up the broad contours they had laid out for the global monetary system to be fit enough to ride out any potential crisis.
Economic stability
Even as Mr Camdessus told the IMF-World Bank joint publication, Finance & Development, in its latest issue that “we have 15 countries represented in the Group to demonstrate in a real spirit of cooperation to create the basis for more cooperative coordination of economic policies”, his bias for bringing IMF into the global monetary centre-stage is palpable in the Group's preponderant weight to the Fund.
As memories of the Fund's egregious conditionality and policy-based lending which hurt many a country that went to it for overcoming balance of payments crisis in the past remain, the Group's suggestions that IMF member countries should undertake to ensure that their policies are conducive to the stability of the global economic, monetary and financial system, asking the Fund to adopt norms for members' policies in support of surveillance over each country's or group of countries' compliance with the obligations under the Articles and a consultation procedure and remedial action if there is persistent breach of a norm would all abridge the national policy autonomy.
European pact
The much-touted European Union's Stability Pact was breached by many members in times of individual troubles and deficit reduction target went off tangent in recent years should not lull policy makers now into replicating such provisions in any global compact when the chips are down.
While the Group favours compliance with obligations should be explicitly ruled upon by the relevant organ of the IMF for “systemically relevant countries” (that, of course, include developed and emerging economies), this harsh suggestion is laced with the Group's specious plea that “oversight of compliance with IMF obligations should be more transparent “than is current IMF practice in order to increase the accountability of those engaged in the surveillance process”.
The Group has dangled the carrot to countries that remain in full compliance with the requirements of the strengthened surveillance system by asking the IMF to develop positive spurs such as automatic qualification for liquidity facilities (such as the flexible credit line-FCL) and precautionary credit line-PCL) and access to the voluntary SDR market.
Governance
On governance, it proposes to merge of the Group of 20 Ministers of Finance and the International Monetary and Financial Committee (IMFC) within the “Council” as envisaged in the Fund's Articles of Agreement and lays out a three-level integrated architecture with heads of Government meeting sparingly, the Finance Ministers and central bank Governors taking strategic decisions and Executive Directors overseeing the work of the IMF and its Managing Director with a global advisory committee of eminent independent individuals.
On balance, the eminent group of reputed central bankers has come out with a blueprint for a major overhaul of the global monetary system that places the primacy of importance to the IMF and casting further obligations on members of compliance of norms and rules to play safe in the choppy waters of global finance.
The moot point is how the rest of the countries cut loose from G-20 would respond to this bold but narrow concentration of power to a few countries in general and to a single institution in particular in ironing out ‘asymmetries and aberrations' in the world financial order?
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.