Quota reforms: IMF needs to stick to new deadlines, says Arun Jaitley

He also said that since the forces of globalisation and multilateralism can go a long way in expanding global growth opportunities

Expressing "extreme disappointment" with delay in completion of IMF quota reforms, India on Sunday stressed that the Fund should abide by the new deadlines set for the 15th General Review of Quota (GRQ).

Finance Minister Arun Jaitley also said since the forces of globalisation and multilateralism can go a long way in expanding global growth opportunities, "we must focus on the coordinated policy actions and growth strategies". "Let me say we are somewhat disappointed that the deadline for completing the 15th Review will be pushed back to the 2019 Spring Meetings," he said at the International Monetary and Finance Committee (IMFC) plenary session.

Jaitley felt there was a "dire need" for increasing quotas since there is a broad agreement on maintaining the current overall lending capacity of the Fund and its resource pool is excessively tilted towards borrowed resources.

Recent work by the Fund also points to the need for realigning quota shares to reflect the changed economic realities, he said further.

"All this can be achieved as part of the 15th Review. Delays in General Reviews of Quotas erode the Fund's legitimacy and credibility, and are against the provisions of the Articles of Agreement," Jaitley said.

"I do hope that the deadlines that will now be set for completing the 15th Review, including agreement on a new quota formula as the basis for realignment of quota shares, will be honoured and adhered to in letter and spirit." According to the finance minister, it is also important that the new quota formula should give more weight to PPP GDP to better reflect the true economic strength of emerging market and developing economies (EMDEs).

IMFC is a key body providing strategic direction to the work and policies of the International Monetary Fund (IMF).

The events were attended by select finance ministers and central bank governors.

Comprehensive review of the current quota formula was completed in January 2013, when the Executive Board submitted its report to the Board of Governors.

The outcome of this review will form a basis for the Executive Board to reach a broad consensus on a new quota formula as part of the 15th Review. Work towards the completion of the 15th Review are in progress.
 

Jaitley also said India broadly agrees with IMF's recent assessment of the global economy.

"The recovery from the global financial crisis has not been as healthy as we would have liked. Growth remains subdued and the outlook is clouded by uncertainties emanating from both economic and political sources," he said.

Against this backdrop, he said: "We also broadly agree with the way forward proposed in the Managing Director's Global Policy Agenda... We particularly welcome the focus on measures to make growth more broad-based. We support the proposals for identifying policy space."

Jaitley also supported the proposals for identifying policy space and said IMF represents an unparalleled pool of economic knowledge and experience and has a very important role to play in advising its membership on the way forward. This is "particularly true of those members whose capacities of economic policy formulation and implementation are less developed".

He suggested that IMF should continue working on removing perceptions of lack of even-handedness.

"The Fund's smaller members should be confident that they are considered as important as the larger ones, and Fund conditionality in programmes is not unnecessarily burdensome for them," Jaitley stressed.

Referring to monetary policies in advanced economies, Jaitley said they have stayed accommodative for an unprecedentedly long time.

In today's inter-connected world, he added that these policies inevitably produce spillovers to EMDEs.

"We have consistently maintained that monetary policies in advanced economies should be mindful of the risks caused to EMDEs. We would expect that while IMF analyses the implications of low and negative interest rates, it should also analyse the implications of these rates for EMDEs. We look forward to IMF's work to better understand the drivers of the slowdown in productivity growth," Jaitley said.

On the Fund's advice to commodity exporters for adjustment and diversification, he is of the view that for a country to diversify its economy over the course of a few years is not an easy task, particularly at a time when global demand is subdued.

"Therefore, we would like the Fund to be more concrete in its advice for diversification, with a set of focused recommendations for action, which are consistent with a country's resources and capabilities," Jaitley added.

Jaitley also said that with inward looking policies finding support of a significant part of the population in some countries, the IMF's call for and focus on international cooperation are "timely".

Recently, the Fund's work plan has expanded to cover areas where the it does not have as much expertise as it has in macroeconomic policies, he added. These include policies to deal with the impact of climate change, foster financial inclusion, tackle growing inequality and so on.

"The Fund would do well to collaborate with the relevant international organisations as it takes on these work-streams while also making efforts to enhance its in-house capabilities through training and recruitment," the minister said.

The discussions centered on the policy responses to prolonged period of subdued global growth, low commodity prices and negative interest rates in some large economies, an official release said.