On board the Prime Minister’s special aircraft:
New prudential norms, stronger surveillance mechanisms and reform of the International Monetary Fund, or IMF, are among the key issues India will raise on Saturday at the Summit on Financial Markets and the World Economy in Washington that will discuss the global financial malestrom, Finance Minister P. Chidambaram said.
Most important among these, in terms of having a widespread impact, will be the setting up of common regulatory and accounting standards across the globe, or at least for the Group of 20, or G20, nations. “We must have convergence of accounting standards,” Chidambaram said.
But he dismissed the idea of a common global regulator saying, ”I don’t think regulation can be raised to a global regulator. That’s too ambitious, and perhaps not possible in today’s circumstances. Regulation must be national.”
The need for global standards goes hand in hand with IMF reforms. “IMF,” Chidambaram said, “was unable to provide the early warning signals to the crisis.” That does not mean the creation of new multilateral agencies and financial institutions, informally being called Bretton Woods II, he added. “But surely IMF must begin to discuss within itself governance reforms.”
“We need to put in place a surveillance mechanism that would have identified the huge risks being taken by some financial entities,” Chidambaram said, adding that an “agreeable entity” is needed. “This is what we talked about in Sao Paulo and this is what we’ll talk about in the Summit.”
Prime Minister Manmohan Singh has the Indian agenda laid out for the summit, which comes four days after finance ministers and central bank governors of G20 countries met in Sao Paulo, Brazil.
“I will put forward our views on the need for greater inclusivity in the international financial system, the need to ensure that growth prospects of developing countries do not suffer, and the need to avoid protectionist tendencies,” Singh said in a 13 November departure statement.
“Today there are only a handful of economies that are driving global economic growth,” Chidambaram said. “These include China, India and few others. It is very important that the few countries that are able to drive economic growth should not suffer. More resources should be made available to these countries.”
On that front, he clarified that India did not seek IMF funds. “We don’t need an IMF programme,” he said. “We need a development programme. So if World Bank is willing to give us more, we will be happy to take it.”
The new financial order, the seeds for which will be laid in the Summit, needs to become more inclusive, Chidambaram said. “G7 is too small. It must expand.” Among the new prudential norms that are needed, Chidambaram listed common norms for capital adequacy, risk assessment and risk weights.
Taking Singh’s anti-protectionist agenda forward, Chidambaram said the crisis should not lead to the creation of “protectionist cocoons. We must now try to ensure free flow of goods and services, capital.”
Apart from G20 leaders, IMF managing director Dominique Strauss-Kahn, World Bank president Robert B. Zoellick, the United Nations secretary-general Ban Ki-moon, and Financial Stability Forum chairman Mario Draghi have also been invited.
On the impact of the global crisis on India, Chidambaram repeated what is now getting to be a somewhat permanent government line: “We will be indirectly impacted. Our growth, our exports and currency flows will be affected.”
“We can weather the crisis and still return a decent growth in 2008-09,” he added. “Even the IMF’s last week’s assessment places India’s growth rate in the current fiscal at 7.8%.”
When asked whether the soon-to-change leadership of the US and India is qualified to take these decisions, he said the resolution of the crisis will stretch well beyond January 2009, when US President-elect Barack Obama takes charge.
“I don’t think we are going to take an election-oriented point of view,” Chidambaram added.