FINANCIAL SCENE
IMF quota shuffle: India's missed opportunities
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But no real setback as the world body's relevance is declining
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It is the ad hocism and lack of transparency of IMF rather than its failure to win recognition by way of enhanced quotas that India and other COUNTRIES campaigned against and lost.
CHANGING SCENARIO: IMF and World Bank delegates speak on the phone between meetings last week in Singapore. — PHOTO: AP
INDIA'S FAILURE at the recent IMF-World Bank meetings in Singapore to get its views accepted in the exercise to reform the IMF, especially its quota system, has evoked mixed reactions. At one level, it is seen as a failure, not just in the sense of being ignored by the governing body of the IMF, but also because its recent economic accomplishments went unrecognised. For, not only was India advocating reform for its own sake, it was also trying to ensure that its economic credentials were accorded their due weight in the new system of quota "rebalancing" under way.
The governing council of the IMF was willing to accept change but not in ways India, Brazil and a few other important developing countries would have liked.
A reform or a structural change or by whatever name one chooses to call an agenda for change in the hide bound institution founded during the historic Bretton Woods Conference (1945) requires substantial support, including from those well entrenched in the existing system and therefore have very little incentive to change. Obviously, there are significant political dimensions to the issue.
Unrealistic quotas
To understand India's predicament in its entirety one has to understand the reform measure as proposed by it against the backdrop of what has existed.
Quotas are the money each country contributes to the IMF. The size of the quota determines the voting power. (Hence the proposal to alter the system is referred to as "Quota and Voice''). The larger the quota a country has, the greater is its say in the working of the IMF.
The problem arises essentially because re-allocation of quotas is done sporadically, the last such revision taking place a decade ago.
This essentially means that quotas and hence voting powers do not reflect the reality of global economic rankings, which is dynamic. The contrast is especially striking when one considers the position of different countries six decades ago (when the IMF was founded) and now.
Many major economic powers at the end of the Second World War era are no longer that important. On the other hand, India, China and many others that were not significant in an economic sense sixty years ago have since grown enormously. If ever there was a case for reworking the quotas and hence the relative abilities to influence IMF's working, it was now.
For India, however, all its economic strengths — well recognised by many international organisations — did not count in the proposed first phase of reform.
This was partly due to the methodology followed at the IMF in deciding quotas. Finance Minister P. Chidambaram had made a strong but vain pitch for re-evaluation of India's key economic parameters on the basis of purchasing power parity. That would give a far better picture of its economic strength than a computation done on (market determined) exchange rates.
Besides, perceptions and hence subjectivity also play a role in assessing a country's standing in terms of the IMF.
Whatever the reason — and no convincing explanation has been given — Will India have to wait for the second phase of reform at the IMF to have its role enhanced? For now China and three others — South Korea, Turkey and Mexico — have been given larger quotas. For the record, India supports this move but as Mr. Chidambaram put it, "we would have been happier if this increase was the result of a comprehensive reform that reflected accurately the economic weights of member countries and required countries that are over represented to yield ground.''
Hence it is this ad hocism and lack of transparency rather than its failure to win recognition in the form of enhanced quotas that India along with 23 other countries campaigned against and lost.
IMF's surveillance role
The expectation is that India and other deserving cases will get due recognition in the second phase of reform that should follow the first phase almost immediately.
However strange it may seem, India`s claim for a larger say in the IMF's affairs comes at a time when the world monetary institution is fast losing its relevance. Its surveillance role and assistance for structural adjustments are no longer keenly sought by many countries, India included. Its publications and database are among the best, but they alone do not help the IMF to retain its original stature in the eyes of many of its 184 members.
So, if and when India gets its due place in the governance structure of the world body, its position will be somewhat akin to members who have large quotas but do not depend on IMF help.
The growing disconnect
That brings into focus the other deep-seated malaise in the IMF's organisation. The latest reform notwithstanding, the rich G-7 countries will continue to call the shots. The U.S. will continue to have more than 17 per cent of the voting power, enough to block any special business (that requires 85 per cent approval). The disconnect between those who govern the fund and those who avail themselves of its loans will only grow bigger. India, China and South Korea (the last two being among the four who have received larger quotas at Singapore) are highly unlikely to depend on the IMF for structural loans to bolster their balance of payments.
India's failure to secure larger quotas in line with its status, when seen in a larger context, is really no major setback at all.
C. R. L. NARASIMHAN
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