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FM to press for unhindered funds from IMF and WB, recasting of short-term capital flow

Finance Minister Yashwant Sinha will forcefully plead with the World Bank to ensure that flows from the multilateral institutions to India were not affected in the wake of its nuclear tests when he visits Washington to attend the bank-fund annual meetings.

Briefing reporters on his coming visit to Washington to attend these meetings, Sinha said that during his meeting with the World Bank president, he would stress that the bank should not be guided by ''political considerations''.

He noted that there was already a softening of stand on the issue of sanctions by the G-8 countries and they had already stated that the humanitarian aid to India would not be affected.

On whether he would also take up the issue with the International Monetary Fund, Sinha said there was no particular programme with the fund.

Sinha, who will also visit Ottawa after his engagements in Washington to attend the Commonwealth finance ministers meeting, said India would strive for achieving a global consensus on restructuring the flow of short-term capital, which was the root cause of financial crisis in south east Asia and other parts of the world.

He said that while there was near consensus among the developing countries on restricting short-term flows, the industrialised world needed to be brought round so that a global consensus on the issue could be achieved to prevent a world-wide catastrophe.

He said this could only become effective if all countries agreed to do so. The nitty-gritty of how to tackle the problem had to be worked out. This concern was drawing the attention of various other fora, such as the World Trade Organisation and the United Nations General Assembly.

India, Sinha said, was faced with no threat on this count because of the ''cautious management of its policy on the external economic front''.

He said: ''We have enough strength to meet any situation, because of adequate foreign exchange reserves and also because our short-term debts are entirely trade related''.

However, if the entire world was taken by recesion, India also would feel the pinch but the magnitude would not be of the scale of the crisis being faced by South-East Asian economies.

Sinha said India would also raise the issue of IMF conditionalities. There were no universal or uniform solutions to the problems faced by countries. ''It is very important to take into account the specific historical conditions of each country and prescribe pragmatic solutions. One theology should not be prescribed. This has been the weakness of the IMF. It, however, appears that it has now dawned upon the fund that this was a mistake and this is reflected in the latest report of the fund.''

Asked if he would have bilateral consultations with the participating countries, he said there were no outstanding issues but India would utilise the opportunity to exchange notes with other nations on bilateral and international matters.

He pointed out that there were two kinds of problems with regard to international capital flows. One was the share run on an exchange rate, in which speculators find the exchange rate overvalued and make a killing.

Both industrialised and developing countries had been a victim of this. The second was the freedom to move capital in and out of a country. This was now causing great problem and destabilising economies. Short-term loans were largely related to financing of international trade.

Sinha said when capital becomes freely movable, then it moves in and out of a country without any other consideration apart from the fact that the sole motive promoting the movement of capital is the profitability of doing so.

It is the perception and judgement of the capital holder which is responsible for this mobility. ''We are saying that the kind of unrestricted movement of capital, especially short-term capital, has played havoc with the financial system of the countries, especially east Asia,'' he said.

Previously there were countries which used to become victims. The affected countries problem could be tackled if the rest of the world got together to solve its problem. Now entire regions get affected, he observed.

There is need for commitment by multilateral institutions and governments and so there is need for consensus for the kind of capital that should be permitted. It must be the burden of the entire global system, the ''recepient'' and ''sender'' countries or ''capital exporting'' and ''importing countries'' on this. All these points will be discussed at the annual meetings. The whole world is keen to redefine the international financial architecture. Everyone is groping what should this architecture be. ''We will be making our suggestions,'' he said.

''For any suggestion to become effective, there must be a consensus. The first and foremost need is to evolve a consensus. These crises have created the necessary mindset for the consensus,'' Sinha said.

He, however, admitted that the annual meetings may not throw up a consensus. The multilateral institutions and the United Nations system are confronted with this situation on a scale that is unprecedented.

The developing countries stand to suffer more on disruption of their financial system. They have not developed the tolerance power and the price is in human terms. This is enormous and it is this which is promoting international community to act.

Sinha said India has escaped the east Asia meltdown not necessarily because it did not resort to full convertibility of the rupee but because its short-term debts have been kept within limits. Short-term debts are only 5.7 per cent of the total debts.

The finance minister said it was not only east Asian economies which had been affected but also Russia and Latin American countries. It should be considered an ongoing crisis. At one time Brazil's reserves were $ 50 billion, now they are only $ 20 billion. Brazil is looking how to stabilise its currency, he said.

UNI