New Delhi: India said that it would contribute $10 billion (around Rs 55,000 crore) to the global firewall that seeks to contain any financial contagion emerging out of the euro zone debt crisis.
Brazil, Russia, India, China and South Africa (Brics) agreed to contribute to the fund created under the International Monetary Fund (IMF) during its Spring meeting in Washington in April, but had not disclosed the exact sums.
With India’s declaration at the G-20 meeting at Los Cabos in Mexico, the Brics nations’ contribution to the warchest will swell to $75 billion.
China has committed $43 billion, and Brazil and Russia will give $10 billion each. South Africa will contribute $2 billion to the fund.
Prime Minister Manmohan Singh. Photo: Reuters
Among other countries, Mexico has committed $10 billion to the firewall, Turkey $5 billion, Colombia $1.5 billion, and Malaysia, New Zealand, the Philippines and Thailand $1 billion each. With the additional funding, the size of the global firewall has increased to $456 billion from $430 billion in April.
Prime Minister Manmohan Singh said at the summit there was concern that the firewall may not be adequate to deal with a contagion. “The resources currently expected to be mobilized by Europe and the IMF are less than what was estimated a year ago, and the crisis is actually more serious,” he said.
Devi Singh, director of the Indian Institute of Management, Lucknow, said this is a good initiative given India has to play a leading role at the global level. “This is kind of a guarantee and the contribution will be made in phases. I don’t think this will be a burden on India’s forex reserves,” he added.
The Brics countries sought to tie the loans to long-delayed reforms that would give the developing world more say at the Washington-based fund by boosting their voting power as shareholders.
“These new contributions are being made in anticipation that all the reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares,” Brics leaders said in a joint statement.
Once the quota reform is carried out, India’s share at IMF will rise to 2.75% from 2.44%, making it the eighth largest shareholder in the multilateral agency, up from its present 11th position. Implementation of the quota reforms has been delayed as countries such as the US have not yet ratified the proposal.
Brics countries said their contribution to the firewall is with the understanding that the resources will be called upon only after existing resources, including the New Arrangements to Borrow—a credit line available to IMF —are substantially utilized.
IMF managing director Christine Lagarde said in a statement on late Monday that these resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members.
“They will be drawn only if they are needed as a second line of defense after resources already available from quota and the existing New Arrangements to Borrow are substantially used. If drawn, they will be repaid with interest. IMF is committed to assuring our members’ interests and resources are safeguarded,” she said.
The Brics leaders also discussed swap arrangements among currencies as well as reserve pooling. They agreed to ask their finance ministers and central bank governors to work on this issue and to report back to the leaders at the 2013 Brics summit.
G-20 nations represent nearly 90% of the world’s gross domestic product, 80% of global trade and two-thirds of the earth’s population. The group is considered to be a key informal forum for economic coordination.
The agenda for the Mexico summit includes economic stabilization and structural reforms as foundations for growth and employment, strengthening the financial system and fostering financial inclusion to promote economic growth, improving the international financial architecture in an interconnected world, enhancing food security and addressing commodity price volatility, besides promoting sustainable development, green growth and the fight against climate change.
Singh said he believes that the G-20 agenda is getting over burdened. “We need to refocus on a few goals rather than dissipating energies on too many fronts.”
The summit needs to send a strong signal to the markets that the euro zone countries will make every effort to protect the banking systems and the global community will back a credible euro zone effort and response, he said.