As a debate rages on over a double-dip recession, the Indian government has asked the global fraternity to think out of the box. For, it has said, lack of resources with one of the important multi-lateral agencies, the World Bank, may turn it a mute spectator at the time of a crisis.
“There are indications that the world could be engulfed in another economic crisis, with serious repercussions for the poor and vulnerable. In such circumstances, we need to be prepared to think out of the box and reflect on what are the important issues the World Bank should be addressing,” finance minister Pranab Mukherjee said in Washington yesterday.
In his interventions in a World Bank Development Committee meeting, he said while the response of the World Bank Group to the last crisis was exemplary, as the world stood on the brink of a recession and continued to hope it would be averted, the lack of adequate financial capacity in the Bank was an area of worry.
“Our concern is that when a new crisis unfolds, IBRD and the IFC (two World Bank arms) will be mute spectators,” the finance minister said.
A level of $15 billion of annual lending by the Bank would be inadequate to meet even the normal needs of development finance of developing countries, he said. In his interventions in the International Monetary and Financial Committee of the IMF in Washington, Mukherjee said emerging and developing countries had been grappling with the problem of volatile capital flows that lead to overheating pressures, complicating the setting of macroeconomic policies.
“Managing capital flows should not be treated as an exclusive problem of the recipient countries, since there are both push and pull factors involved. The approach to capital flows depends on country-specific circumstances, and any policy framework that seeks to restrict the range of policy options for capital receiving countries would lack even-handedness,” he said.
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Mukherjee was in Washington to take part in Fund-Bank meetings.
The finance minister also said the global financial safety net needed to be “truly global” and should consist of multiple layers to be effective. He warned it was no substitute for “macro-economic adjustment or sound regulation and supervision”. At the World Bank meeting, he said the foremost priority should be to address the lack of financial capacity of the Bank by increasing its capital base and finding other creative ways of to expand lending to and investment in developing countries.
The finance minister said middle income countries (MICs) often feel disconnected with many Bank activities. “Efforts should be made to regenerate interest in MICs towards the Bank, particularly through enhanced financing, more knowledge products and a focus on the poor in MICs.