Tokyo: Inside the press kit of the annual meetings of the International Monetary Fund (IMF) and the World Bank in Tokyo came a neatly wrapped square box with three tiny “stand-up dolls” made in the age-old Japanese tradition of Okiagari-Koboshi folk crafts. A note inside read that the host Japanese government pins its hope for recovery and stabilization of Japanese and global economies on these stand-up dolls which are known as symbols of unyielding spirit because they keep bouncing back whenever knocked down.
As the finance ministers and central bank governors of member countries start their two-day meetings on Friday in Tokyo, there isn’t much hope for a quick rebound in the world economy. The Fund in its World Economic Outlook released on Tuesday has already lowered its growth expectation for developed countries as well as emerging economies from its July and April outlook.
During the spring meetings in Washington DC, IMF managing director Christine Lagarde pressed member nations to contribute to create a global firewall to respond to any spread of financial contagion to other regions of the world and make it what she called a “Washington moment”. There is no such expectation of Tokyo. The mood is rather sombre.
“The biggest change compared with what we said back at the spring meetings is that the economic crisis is not only affecting the advanced economies, but also having a ripple effect on emerging markets particularly in Asia,” Lagarde said, addressing the customary press briefing on Thursday, ahead of the plenary meeting of the 188 member nations on Friday.
More worryingly, IMF now believes that there are too many imponderables impacting growth and investment sentiment. Lagarde admitted as much: “What is causing that situation? Many factors, obviously, and clearly some tail risks that are looming and that are of great concern, but also something which is probably more difficult to analyse and to pin down but which everybody will tell you matters, which is the degree of uncertainty that really applies in many corners of the world.”
“Whether you turn (to) Europe, to the United States of America, to other places as well, there is a level of uncertainty which is hampering decision-makers from investing, from creating jobs, and from developing values,” she added.
There is also little expectation on the implementation of the 2010 agreement for governance and quota reform at the Fund which was scheduled to be completed by the 2012 annual meetings. The reforms at the multilateral institution are intended to make the Fund more representative of the current global economic scenario where many developing countries have overtaken developed nations in a variety of economic parameters.
The proposed reforms will see each of the BRIC nations (Brazil, Russia, India and China) becoming one of the top 10 countries in quota share at the IMF. Once the quota reform is carried out, India’s share at IMF is set to rise to 2.75% from 2.44%, making it the eighth-largest shareholder in the multilateral agency from its present 11th position.
In order for the proposed amendment to go through, it needs to be accepted by three-fifths of the Fund’s 188 members having 85% of the Fund’s total voting power. As of 10 September, 105 members having 66.14% of the total voting power have accepted the proposed amendment. The proposal is mainly held up as the US, with the largest quota share of 17.67%, is yet to ratify it.
“We are almost there,” Lagarde said at the briefing. “It is important that we actually deliver on that commitment that was made back in 2010,” she added.
Indian finance minister P. Chidambaram, addressing a G-24 press briefing, said the group expects the quota reforms to be completed latest by January 2013 so that it becomes the basis for the 15th review of IMF quotas to be completed by no later than January 2014.
The bilateral territorial dispute between Japan and China over uninhabited islands known as Diaoyu by China and Senkaku by Japan have further added to the tension at the Fund-Bank meetings. China has said that its finance minister and central bank governor will not be attending the IMF annual meetings in Tokyo, and instead its deputy finance minister will attend the meetings.
Though IMF officials have denied that tension between the Asia’s biggest (China) and second-biggest economies (Japan) will have any impact on the talks, this is one question raised at all press briefings by the IMF.
“Our concern is that they will be missing out a great meeting, because really Tokyo is at its best,” Lagarde said, answering a question on Chinese top officials skipping the event. “We hope that differences, however longstanding, can be resolved harmoniously and expeditiously so that, from an economic point of view, cooperation can continue and can be beneficial not only to the Asia-Pacific region, but also to the global economy, because we are all very closely interconnected.”
Asit Ranjan Mishra is in Tokyo on the invitation of IMF as a part of its journalism fellowship programme.