Tuesday, November 11, 2008

India and the G-20 Washington summit

Yele University Professor T.N. Srinivasan suggests some of the following ideas that India may consider in the forthcoming Group of 20 Countries meeting on the issues of present financial crisis.

  • The most important reforms in my view would be first to restrict the mandate by the IMF to maintaining the stability of the global financial system with the definition of the financial broadened to include the fiscal, monetary and exchange policies as well as global markets for trading financial claims. The involvement of the IMF in the largely domestic policies of its developing country members which have no cross-border externalities through its insistence of the Poverty Reduction Strategy Papers from those seeking its assistance should be stopped forthwith. India should strongly advocate both these reforms. 
  • It is likely that the summiteers may not be able to resist pressures to discuss regulatory reform and, in particular, the boundary between regulation and markets. Such a discussion can be meaningful only after we have an adequate analysis and understanding of the relative contribution of failures of each to the current crisis. In its absence, I would urge India not to take an ideological posture on the issue but to simply emphasise that it would be counterproductive to suggest a “one size fits all approach.” Instead, the search should be for a solution that leaves adequate and appropriate room for markets and regulation. Another reform issue that should be postponed for a later occasion is the reform of the World Bank. It certainly is in need of a significant downsizing and restriction of its engagement through its lending and free policy advice only to those countries for which external resource and policy making capacity are serious constraints on development. There is no rationale any longer for the Bank to be lending, for example, to Brazil, China or India. All three should be charged a fee for the Bank’s advice if they seek it.

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