Outlook for Pittsburgh

The G20 finance ministers have done the preparatory work

Finance Minister Pranab Mukherjee has reason to feel satisfied with the outcome of the meeting of finance ministers and central bank governors of the G20 countries, in London last week. India's role in breaking the deadlock over the Doha round of trade talks came in for appreciation as the gathered ministers renewed their call for an end to all forms of protectionism and an early conclusion of the ongoing multilateral trade negotiations. Importantly, there was agreement on increased representation and voting rights for emerging economies in the International Monetary Fund and the World Bank. There was also a reaffirmation of the commitment to increase accountability, strengthen the involvement of governors at the IMF in strategic oversight, and move to an open, transparent and merit-based selection of top management positions in the two Bretton Woods institutions. More significantly, stress was laid on candid, even-handed and independent surveillance of all the major economies, to ensure a more sustainable global economy and a well-functioning international financial system.

India’s “quota” (share of capital) in the IMF and the corresponding voting rights will go up a few notches, reflecting more appropriately its current share in the global economy (China's will go up by more, naturally). With the commitment to usher in a transparent and merit-based selection of the top management of the IMF and the World Bank, the US and the European Union should no longer be able to monopolise these jobs. Similarly, independent and even-handed surveillance should ensure that the developed economies too come under scrutiny by these institutions—though how effective this will be remains to be seen, especially if these countries have no intention of borrowing from the Fund. Still, this formal recognition of the absence of such scrutiny in the past, identified as one of the factors that fuelled unbridled growth in imprudent financial innovations by investment banks in the US and Europe, is welcome.

Going by the progress report on the promises made at earlier meetings and the communiqué issued last week in London, the Pittsburgh summit of the G20, scheduled for later this month, may well see some action to implement these proposals. With respect to the higher quota in the IMF for developing economies like India, a key question will be whether it manages to reduce the US voting percentage sufficiently to remove its virtual veto in the Fund and Bank.

The Pittsburgh summit could determine the timing of a calibrated winding down of public spending, now that the signs of a global economic recovery are evident. While some developed countries like France and Germany want the G20 to start discussing “exit strategies” to scale back public spending, India along with other BRIC countries have opposed any premature winding down of financial support, arguing that the scale and time-frame of any such exit strategy should vary from country to country— a perspective that seems somewhat obvious. This view received the endorsement of the finance ministers of the G20 countries in London last week.