Tokyo: India has voiced concern over the depleting financial resources of the World Bank, which it thinks could handicap the ability of the multilateral lender’s fight against poverty.
The issue assumes significance as emerging economies that are part of the BRICS (Brazil, Russia, India, China, South Africa) grouping have proposed a BRICS Development Bank as an alternative to the World Bank.
Finance minister P. Chidambaram on Saturday told the Development Committee meeting that noticeable deterioration in the capital adequacy of the World Bank is indicative of the vulnerability of the bank.
“Considering the pre-eminent position of the World Bank in the arena of development finance, it would be a tragedy if the bank is handicapped in meeting the requirements of the member countries when they need it the most,” Chidambaram said.
Speaking earlier at the international monetary and financial committee of the International Monetary Fund (IMF), Chidambaram said at this juncture a well coordinated, collaborative and bold global effort is needed to address this challenge. “In 2008-09, the World Bank Group (WBG) had responded to the financial crisis in an exemplary manner. It is a matter of concern that, today, the WBG is constrained in responding in a similar manner,” he said.
The two-day discussions of the finance ministers and governors of the member countries of the World Bank and IMF concluded on Saturday with a call for the advanced economies to deliver the necessary structural reforms and implement credible fiscal plans.
The final communique also asked emerging market economies to preserve or use policy flexibility to facilitate a response to adverse shocks and support growth.
During the BRICS summit in New Delhi in March this year, the finance ministers of the five emerging economies held extensive discussions on the proposal of a BRICS bank and commissioned a feasibility study for the proposal to be completed before the next summit that is scheduled to be held in Durban, South Africa, in March.
This was seen as an outcome of the growing frustration of the key emerging economies with the reluctance of developed nations to adequately fund the World Bank.
An Indian government official, speaking under the condition of anonymity, said the idea of the BRICS bank came because the World Bank is not doing enough.
“If they start doing what they are expected to do, then we may call off the idea of a BRICS bank. The World Bank just does not have enough resources,” he added.
The official said that the World Bank has a paid-up capital of just around $10-11 billion and its annual lending is about $15-$20 billion globally. “The maximum share of around $3 billion comes to India. It could only add a small size infrastructure project,” he added.
The official also expressed dissatisfaction that while the G-20 has supported the idea of enhancing IMF’s resources to tackle the financial crises, especially in the euro zone, the idea to raise additional resources for the World Bank to increase its development finance activities has not sailed through.
The IMF has so far been able to derive a commitment of $461 billion of additional funding from member countries to fight any possible spread of the financial contagion to other parts of the world.
Chidambaram, in his speech at the Development Committee meeting, said he does not doubt that the World Bank must have taken stock of the situation and decided on an appropriate course of action to increase its resources.
“We would appreciate if that is shared with us. All options must be considered. We must eschew the temptation to succumb to pre-determined positions,” he said.
World Bank Group president Jim Yong Kim said the bank is in very good financial situation. “In a low-interest-rate environment, our income does go down. If low interest rates continue for a very long time, then we will have to be creative. But right now we are doing OK. Our capital shifts in relation to the demand. So we respond to the demand that we have and right now, I would just say we are keeping up,” he added.
Kim said any discussion of raising more capital has to include all our member countries because it is a very difficult and important issue. “I don’t think we need to have that discussion right now; but if we do, we will surely have that with all our member countries,” he said.
Asit Ranjan Mishra is in Tokyo on the invitation of IMF as a part of its journalism fellowship programme.