India has voiced strong reservation to the delay in implementation of the quota reform of the International Monetary Fund (IMF) with Finance Minister Arun Jaitley saying that the IMF would be constrained in meeting its obligations in the absence of governance reforms. In his lead intervention in the Plenary Session of the International Monetary and Finance Committee (IMFC) of the International Monetary Fund here, Jaitley said, “The International Monetary Fund would be constrained in meeting its obligations if the International Monetary Fund quota and governance reforms are not implemented.”
International Monetary Fund quota reforms are aimed at giving more voice and voting power to the emerging economies with regard to the functioning of the multilateral body. Emphasising that the International Monetary Fund plays a very important role in the global economy, he expressed concern at the unprecedented delay in implementation of the 14th General Review of Quotas.
Jaitley said that the global economic outlook outlined by the IMF does not look particularly encouraging, which also has a bearing on India’s exports. India has witnessed less than normal monsoons for two consecutive years. In spite of these challenges, Jaitley <g data-gr-id="50">said ,</g> the Indian economy grew 7.3 <g data-gr-id="47">per cent</g> during last year, significantly better than 6.9 per cent recorded in 2013-14.
This year, India expects to do even better, he said. Speaking about the economic situation back home, the Finance Minister said the Indian government is committed to a path of fiscal consolidation. The current account deficit(CAD) has come down substantially to around 1.3 per cent of GDP in 2014-15, which was around 4.8 <g data-gr-id="48">per cent</g> two years earlier.
Similarly, he said that a couple of years back, India was suffering from double-digit inflation and now the inflation has dipped to a low of 3.7 <g data-gr-id="34">per cent</g>. He said that the country is utilising the regime of lower oil and commodity prices to increase investments in infrastructure and irrigation, according to an official press statement. Jaitley said that India is also undertaking comprehensive subsidy rationalisation and has successfully rolled out the largest financial inclusion initiative in the world under which around 185 million bank accounts have been opened.
Meanwhile, US Treasury Secretary Jack Lew has asked the Republican-controlled Congress to pass the IMF quota reform to give emerging markets a bigger say at the global lender, saying it is in the economic and national security interests of America. “For years, the United States has led the IMF and the multinational development system. We have been working intensively with our Congress to advance the approval of International Monetary Fund quota reform, which is in our economic and national security interest. This is a question of will, not capacity,” Lew said in his address to the IMF-World Bank meeting. In 2010, IMF had agreed on a set of quota and governance reforms giving more voice and say in the <g data-gr-id="56">decision making</g> <g data-gr-id="55">process</g> to countries like China, India and Brazil. But this has not been realised so far as the US Congress has not approved it.
Lew said as immediate priorities, Congress must quickly increase the debt limit and fund the government in a way that invests in economic growth that flows to <g data-gr-id="54">middle class</g> families, and pass IMF quota reform. The IMF, he said, remains the preeminent global institution for building cooperation on and responding to crises that impact the international monetary and financial system. The United States continues to be a staunch advocate of the institution’s mandate and activities, which includes encouraging relevant and necessary reforms to individual economies and to the global monetary and financial system, he added. A well-resourced IMF is critical to its ability to act decisively as the lender of <g data-gr-id="52">first</g> resort during crises, he noted.
“The United States believes in the effectiveness and value of the International Monetary Fund in helping create a more stable and well-functioning global economy, and we remain strongly committed to the IMF as a quota-based institution,” he said.
“We continue to believe that the 2010 quota and governance reforms are critical to US leadership in the world and a matter of US economic and national security that requires immediate action in Congress. The President (Barack Obama) and I remain dedicated to finding a legislative vehicle for their implementation as soon as possible,” Lew said.
China slowdown likely to hit Asia-Pacific hard: IMF
The IMF on Saturday warned that a sharp economic slowdown in China would hit not only the world’s second largest economy but the rest of Asia-Pacific region hard. “Given the sheer size of the Chinese economy, a negative growth shock there would hit the rest of Asia-Pacific region hard,” the International Monetary Fund (IMF) said in its Asia and Pacific Regional Economic Outlook Update released here on the sidelines of the annual fall meeting of the IMF and the World Bank.
Such a shock could come from failure to fully implement reforms (owing to reform fatigue, for instance) or from financial shocks and <g data-gr-id="129">stronger-than</g> envisaged financial linkages, which could make policy measures less effective in containing domestic financial contagion, the report said.
Ongoing efforts to rebalance the Chinese economy could also prove less effective than anticipated, leading to a sharp drop in demand, it noted, adding that a sharp slowdown in China would pose regional growth risks through strong trade linkages and increasingly through impacts on financial market sentiment.
“Econometric estimates accounting for trade and financial linkages between China and the rest of Asia indicate that spillovers could be sizeable, with a 1 percentage point drop in China’s GDP growth lowering Asia’s GDP growth by about 0.3 percentage points,” it said.
The effects could be potentially greater today given the growing linkages within the region, the IMF said, observing that weaker commodity prices would also impact growth in commodity exporters including Australia, Indonesia, Malaysia, and New Zealand.
Weak domestic demand in China suppresses its imports, increasing the risk of <g data-gr-id="143">sharper-than-expected</g> slowdown in its economy with global ripple effects, the economic outlook said. Also weak demand in China’s export destinations, including core advanced economies, reduces China’s exports and also imports with it, given the role China has played as the key downstream leg in global value chains.
The IMF said China continues to rebalance its economy toward domestic consumption and services and away from credit-led investment. From the heydays double-digit growth, China’s economy had declined to 7.7 <g data-gr-id="131">per cent</g> in both 2012 and 2013, the slowest pace since 1999 largely affected by the world economic crisis and declining exports due to global economic slowdown.