India has pledged a $10-billion contribution to the International Monetary Fund (IMF) to help it create an additional $450-billion firewall to resolve the Euro zone crisis. It also posed a key question before G-20 leaders—who would fund the growth requirements of developing, as well as least-developed countries?
Prime Minister Manmohan Singh held bilateral talks with German Chancellor Angela Merkel and Mexican President Felipe Calderon. He also spoke to US President Barack Obama for a couple of minutes on the sidelines of the G-20 summit, before Obama left for his country.
At the meeting of the heads of states of G-20 nations, Singh asked world leaders to increase the capital base of multi-lateral development banks like the World Bank to fund infrastructure needs of emerging and poor nations to boost growth, being pulled down by a decline in capital inflow due to the Euro zone crisis.
Singh warned world leaders additional liquidity to the IMF would be redundant, if not complemented by adjustment processes in countries facing high debts. India also cautioned the Euro zone crisis could choke trade finances quickly and strangulate global economic growth. “The IMF has a critical supportive role to play in stabilising the Euro zone. All members must help the fund in playing this role. I am happy to announce India has decided to contribute $10 billion to the IMF’s additional firewall of $430 billion,” Singh said.
However, the capital from BRICS (Brazil, Russia, India, China and South Africa) nations, 16 per cent of the total additional funds, wouldn’t come without riders. Before the G-20 meetings, BRICS had already stated these resources would be called upon only after existing resources were substantially utilised.
In 2009, too, India had committed $10 billion to the IMF to help it tackle the global financial crisis. It had again contributed $4 billion in 2010.
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India’s contribution would be just 2.22 per cent of the additional liquidity injected into the IMF, close to its quota of 2.44 per cent in the fund. A member’s quota determines its financial and organisational relationship with the IMF.
BRICS had also said the new contributions were being made anticipating all the reforms agreed upon in 2010, including a comprehensive reform of voting powers and reform of quota shares, would be implemented in a time-bound manner.
“I must point out progress in quota reforms is proceeding more slowly than progress in raising resources. We (G-20 leaders) discussed the need to move towards a banking union in Europe to help strengthen financial stability. I am also concerned prudential rules adopted in banking regulations do not discriminate against lending to developing countries,” Singh said.
According to the quota reforms agreed upon by IMF member countries, the quota of advanced countries would decline from 61.6 per cent to 57.7 per cent, while that of emerging market economies would rise from 38.4 per cent to 42.3 per cent. These quota reforms would be reviewed in January 2013.
In April, BRICS nations, along with 25 other countries, had pledged to contribute $430 billion to the IMF, doubling its lending capacity. However, at the G-20 meeting, the pledged contribution rose to $450 billion, officials said. The Euro zone nations pledged about $200 billion.
Singh said the IMF’s existing firewall may not be adequate to deal with the Euro zone crisis. He also asked leaders to fund multi-lateral lenders to support the growth needs of developing and least-developed countries, which were unable to finance their infrastructure needs due to low capital inflows. “We have expanded the resources of the IMF enormously, largely to support programmes in rich countries. We now need to take steps to substantially expand the resource base of multilateral development banks so that they have the firepower to help developing countries pursue their development goals.”
He said while many rich countries faced difficulties, the less-developed and developing countries were also stressed because of the impact of the global crisis.