On Board PM’s Special Aircraft: India will pitch for a common prudential and regulatory standards for all financial institutions in the world and a convergence of accounting standards to prevent collapse of global financial institutions at the summit of world leaders on global economic and financial crisis in Washington on Saturday.
Prime Minister Manmohan Singh will articulate India’s views at the summit called by US President George W Bush which will also be attended by leaders of developed countries like France, Germany, Britain and Japan and those from the developing world like China and Brazil.
Finance Minister P Chidambaram told reporters on board the Prime Minister’s special aircraft, India feels there was a need for the world to move towards a new order of global investment which is possible only by greater inclusivity in the international financial system.
“In many ways the International Monetary Fund (IMF) has been unable to be an early warning system. The G-7 is too narrow and too small. An inclusive system which can serve as a global oversight and serve as an early warning system is needed,” he said.
Asked if he was talking about a global regulator, Chidambaram said regulation in the present context was a function that national regulators would be loathe to give up.
“That is why regulation must be national. If we can agree upon a common prudential and regulatory standards and then ask national regulators to apply those standards, there can be some kind of a global oversight, where the national regulators are doing their job.”
I don’t think regulation could be raised to a global level. That will be too ambitious and perhaps not not possible in today’s context,“ he said, adding there must be some ways by which countries would have a global oversight with commonly accepted regulatory and prudential standards overseen by national regulators.
Chidambaram said in retrospect it is clear that if there had been effective surveillance mechanism, it could have identified the huge risks that had been taken by some international financial institutions.
In the absence of such a surveillance or oversight mechanism these financial institutions, some of which collapsed, took unacceptable risks that caused a crisis in the US, which is the epicentre of the global meltdown.
Referring to Prime Minister’s departure statement, he said there were three points which he had dealt with - first the need for greater inclusivity in the international financial systems and second the need to ensure that the growth prospects of the developing countries do not not suffer.
And third, avoid protectionist tendencies. “The key point is we must move towards a new order of global investment. This can become possible only by greater inclusivity in the international financial system.”
He said while the world grapples with the economic crisis, the countries most affected by it find their growth prospects hampered.
Among them are China and India and a few other countries. Some others have the ability to become drivers of growth, but they are also affected by the economic crisis.
Excepting for increasing the free flow of goods, services and capital there is no no way in which the world will recover and get back to the growth path.
Asked if India was talking of a new mechanism for fund flows, Chidambaram said it depended upon where the resources would be found. If the resources could be found and channelised through the existing multinational institutions that would be good.
Else, we have to find another mechanism through which these resources can be channelised to the developing countries, he added.
Asked if China and others could be asked to move their reserves from the US to developing nations, he replied that he did not not know where China kept its reserves.
To a question on increased contribution to IMF by India, he said if it was in terms of contribution to additional capital for these institutions then surely India would accept its share of responsibility.
About reforms of IMF, Chidambaram said IMF has just done one set of reforms under which India got a higher voting right.