B S Raghavan

China, India under IMF ‘microscope'

Updated on: Apr 17, 2011

I have known from my own experience of the UN system, that developing countries which are members of international bodies, such as the IMF or the WTO, with far-reaching mandates, often lack sufficient clout or guts to stand up to pressures from richer or more powerful nations ostensibly operating through those bodies.

Their vulnerability arises from three factors: The first is the meetings of the multilateral institutions take place so far away from home most of the time, and their agendas are so very arcane and esoteric, and presented in such a highly convoluted and jargonised prose, that very few even in the departments dealing with them in governments comprehend their full import.

Second, for the same reason, the media too largely skip the news of the goings on in Tongo, Toronto or Timbuctoo, with the result even the academia and the intelligentsia are ignorant of the implications of the decisions taken. This disability is compounded by the absence of any system whereby participants, on their return, give a full account of the proceedings at the meetings by means of either a media release or report to Cabinet or Parliament.

Taking soft stance

Third, taking advantage of the apathy induced by the above realities, both at the governmental and non-governmental levels, the official delegates, especially from developing or emerging economies, are prone to take soft, pliant or ‘flexible' stances, as a way of currying favour with the top brass of multilateral institutions, lured by jobs with fat, tax-free pay packages at their disposal.

These reflections raced through my mind when I read the lead of a Reuters dispatch from Washington datelined April 16 giving out that the Group of 20 (G-20) nations agreed the previous day “to put the policies of seven major nations (Britain, China, France, Germany, India, Japan and the US under a microscope as part of a plan to prevent a repeat of the global financial crisis”.

And who will wield the microscope? Who else but the know-alls of the IMF! The G-20 has unquestioningly given them the omnibus authority to monitor the economic and monetary policies of the specified nations, with reference to levels of debt, budget deficits, trade balances, exchange management, investment flows and capital controls, so as “to determine if a nation's policies are putting the global economy at risk and should be changed”. (Mark the last three words!)

The explanation of the Finance Minister of France (which is the current chair of G-20), for the choice of the countries is that they are of systemic importance”, and, therefore, “the net (should) a little bit tighter” for them.

So what is objectionable? Shouldn't India and China be happy that they have been considered the equals of Britain, France, Germany, Japan and the US in “systemic importance”?

Targets of arm-twisting

As every schoolboy knows, that isn't how realpolitik works. One can be sure that ultimately, it will be India and China, and not the five advanced economies lumped with them, that will end up as the intended targets of prying and arm-twisting by the IMF. There are, of course, the saving clauses that the report of IMF surveillance will only be recommendatory and not binding, and in preparing it, “national circumstances…will be taken into account”.

By now, however, every developing country subjected to IMF treatment knows how hard it can lean to get things done its way.

Assuming the IMF comes up with adverse comments on China's exchange rate policy and trade surplus with the US and on India's cautious approach to opening of sectors for investment, will they not become a pretext for the industrial countries to pressure the two hapless members to change their policies in the name of averting a global crisis?

I am surprised that India and China which have the most at stake in terms of maintaining the tempo of their economic growth agreed to go under the IMF ‘microscope' in this astonishing fashion?

Published on April 22, 2011

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