FM calls for reform of Bretton Woods Institutions

New Delhi, Oct 23 (UNI) Finance Minister P Chidambaram has made out a case for transfer of shares of the International Monetary Fund (IMF) from the developed to the developing countries and offered a compromise formula which will suit India.

Addressing the Annual Plenary of the Joint Board of Governors of the Fund and the Bank yesterday, Mr Chidambaram said the Singapore resolution on 'Quota' and 'Voice Reform' in the IMF called for a formula that should provide a simpler and more transparent means of capturing members' relative positions in the world economy.

The Finance Minister's speech was delivered in Washington and its copy made available here.

He said, ''We are disappointed with the progress made until date. While there is an appearance of progress in identifying the elements of a new formula, a new formula itself is not yet on the table. The new formula must result in a meaningful transfer of shares from developed to developing countries. We believe that this is possible only if GDP is computed on PPP terms.'' Mr Chidambaram, however, said India was willing to consider a blended GDP as a measure of compromise, so long as the outcome meets the country's basic objectives.

He said other elements should be part of the formula only to the extent that they were useful to identify those who would need to draw from the Fund and those who have the capacity to contribute to the Fund.

''The time between now and the Annual Meeting of 2008 is short. We must, therefore, redouble our efforts and agree on a formula that will redeem the pledge made in Singapore,'' he said.

Mr Chidambaram said governance structure and voting shares of developing countries are at the core of the 'Voice reforms' issue in the Bank.

''We maintain that any discussion on the structural options without a review of the fundamental formula for IBRD shares would be superficial. While GDP would remain a variable, we also need to include other variables, such as poverty numbers and infrastructure deficit, to correctly reflect the demand said,'' he said.

Mr Chidamraam said financial market risks continue to unfold and the prospects of the global economy for 2008 were ''somewhat uncertain''.

''We urge the advanced economies to take appropriate measures to restore full normalcy in financial markets and share with the world what they intend to do,'' he said.

Mr Chidambaram said the global economy has registered sustained growth in recent years. The world GDP growth is projected to cross five per cent this year.

''China and India continue to remain the engines of global growth.

Latin America and Sub-Saharan Africa have also recorded strong growth. However, with financial market turbulence spreading from its epicenter in the US to Europe, the downside risks have increased,'' he said.

The Finance Minister said global imbalances, supply-side inflationary pressures and protectionism continue to pose risks to growth. Oil and food prices have spiraled. As food comprises a large share of the consumption basket in developing countries, high food prices have political and social ramifications, apart from triggering inflation. These risks call for greater vigil on the part of all countries and a state of readiness to respond with both short and medium term measures, he said.

Mr Chidamabaram said India was committed to addressing climate change. ''We have made considerable progress in de-linking economic growth and energy use, and in reducing our CO2 emission-intensity.

We have offered that our per capita GHG emissions will not be allowed to increase beyond the per capita GHG emissions of industrialised countries, and we have urged the industrialized countries to reduce their per capita GHG emissions.'' He said India was of the view that the coordinating role of IDA can be more effective with increased IDA funding. ''We endorse the recommendation that IDA support should reach a 'critical mass' and this support should keep pace with the increasing absorptive capacity of its clients.'' ''We are constrained to note that the supply side of aid, both in quality and quantity, is not keeping pace with the demand.

IDA's real growth has been flat for over two decades. The slow and uneven global aid spread contrasts with the Monterrey and Gleneagles resolves on scaling up. The predictability of aid also continues to be low. We urge the donor countries to honour their commitments,'' Mr Chidambaram said.

UNI