Free Capital Flow Fraught With Risk: Chidambaram

Addressing the joint annual discussion of the International Monetary Fund (IMF) and World Bank here, Chidambaram said an increasingly large number of countries had accepted the obligations under Article 8 and moved towards current account convertibility. However, success in managing current account convertibility should lead to greater flexibility in the capital account.

There was a case for increasing the flow of lending from the World Bank to support critical areas, especially infrastructure, Chidambaram said. This was an area where most developing countries were trying to increase public and private investment. I believe the World Bank can help support this effort through a combination of direct lending and imaginative use of guarantee facilities, Chidambaram said.

 

He said the international community must remain especially vigilant and united against insidious new forms of protectionism through linkage of trade with labour standards, environment and other issues.

The evolution of healthy economic interdependence has been greatly aided by the progress achieved in moving towards an open, rule-based, non-discriminatory world trading system. But we still have a long way to go and threats of protectionism are ever present, Chidambaram said. The finance minister noted with

satisfaction that progress has been made towards solving the problem of highly-indebted poor countries. We hope the remaining details will be sorted out expeditiously, he said.

We also welcome the progress in establishing new arrangements to borrow, which would effectively double the resources available with the IMF under the general arrangements to borrow, and thus improve the Fund's ability to provide emergency financing to members in situations of systemic stress.

However, access to borrowed resources cannot be a substitute for an increase in the fund quotas. The IMF's basic strength must be derived from a substantial expansion of its own resources through quota increases.