on Tuesday (June 19) announced a 10 billion USD contribution to the IMF's
additional 430 billion USD financial firewall to help the debt-wracked 17-nation
Eurozone so that the faltering world economy is protected against the spread of
any financial contagion. The announcement of the contribution was made by Prime
Minister Manmohan Singh in his address at the Plenary Session of the seventh
summit of the Group of developed and developing countries (G-20) in this Mexican
resort town against the backdrop of growing calls to nations to increase
contributions to the International Monetary Fund (IMF) for the bailout
India’s contribution along with pledges by other member
countries of the five-nation BRICS bloc has helped increase IMF's resources and
give a boost to the 430 billion USD fund being used as a firewall to support
struggling Eurozone economies. "The International Monetary Fund has a critical
supportive role to play in stabilising the Eurozone. All members must help the
Fund to play this role, I am happy to announce that India has decided to
contribute 10 billion USD to the IMF's additional firewall of 430 billion USD,"
he told the world leaders at the seventh summit of the grouping which accounts
for 80 per cent the world's GDP.
India has previously pledged to make
contributions to the bailout fund but did not disclose the exact amount of its
contribution to the fund. According to Chinese Vice Finance Minister Zhu
Guangyo, the BRICS is committed to pledge 60 billion USD to boost the firewall.
Besides India and China, the other countries in the bloc are Brazil, Russia and
South Africa. The IMF fund will serve to help governments that are struggling to
cope with debt repayments but Eurozone leaders still faced pressure from their
G-20 peers to make reforms to head off future financial crisis.
were being made to the Eurozone to put in place a bigger financial firewall to
combat the crisis before other countries will pour more cash into the IMF Noting
that developed countries have expanded the resources of the IMF enormously,
largely to support programmes in rich countries, Singh said that steps are now
needed to be taken to substantially expand the resource base of Multilateral
Development banks so that they have the firepower to help developing countries
pursue their development goals.
About countries pledging more
resources to IMF, Singh said there is concern that the firewall available may
not be adequate to deal with the financial contagion. "The resources currently
expected to be mobilised by Europe and the IMF are less than was estimated a
year ago, and the crisis is actually more serious," he said. The prime minister
said that part of the solution lies in providing liquidity to cope with loss of
market confidence. But, liquidity does not help when solvency is in question, he
"To address this problem, liquidity must be provided in
parallel with effective adjustment programmes that ensure an early return to
debt sustainability," he said. Singh said that the adjustment programme adopted
should lead to an acceleration of growth so that countries can grow out of the
debt trap. Stating that the global economic situation is deeply worrying, Singh
said the economic recovery is faltering and even the fast growing emerging
markets are slowing down.
Calling for policy action on several
fronts, Singh said that the issue of greatest concern at present is the
uncertainty affecting the Eurozone. "The sovereign debt crisis and the banking
crisis now on the horizon have grave implications for the health of the entire
global economy," he said. Singh also made a reference to a new government in
Greece about to take office. "We wish them well and are encouraged by the early
statements of intent, he added. Greece's far right party, which will be forming
the government, has spoken about its intentions to remain in the Eurozone.
However, the prime minister said the risks of contagion in Europe
remained because they reflected weaknesses in the banking sector arising from
excessive sovereign debt and low growth prospects. "A crisis in the European
banking system can choke trade finance quite quickly, and end up choking
economic growth not just in the Eurozone but in the world in general," he said.
Singh said that the Las Cobas Summit needed to send a strong signal to the
markets that the Eurozone countries will make every effort to protect the
banking systems and the global community will back a credible Eurozone effort
He also spoke about the contentious issue of the
relationship between austerity and growth. "It can be argued that austerity now
will lay the basis for sustained growth later. But there is also an alternative
view that with growth impulses as seriously weakened as they are today,
synchronised austerity across many countries may not be the right medicine," he
said. Financial markets normally favour austerity, but even they are beginning
to recognise that austerity with no growth will not produce a return to a
sustainable debt position, the prime minister added.
Stating he is
not suggesting that fiscal prudence is not important, Singh said that he is only
saying that given the large adjustment needs, not all of it can be front-loaded
everywhere. "This is especially relevant within a currency area. Austerity in
the debt-ridden members of the Eurozone can work only if surplus members are
willing to expand to offset contraction elsewhere in the currency area," he
said. While many rich countries face difficulties, the less developed and
developing countries are also facing serious problems because of the negative
impact of the global crisis, Singh said.
Infrastructure investment in
developing countries assumes special importance in this context, he said, adding
that it laid the foundation for rapid growth in the longer term, while providing
an immediate stimulus for their economies and also for the global economy, by
providing a robust source of demand. An expansion of investment in
infrastructure in developing countries is only possible if they can get access
to long term capital to finance such investment, he said.
“This is difficult at a time when capital flows are disrupted.
The Multilateral Development Banks can play a major role in this context," Singh
said. The prime minister also said that the G-20 Framework Working Group and the
Financial Stability Board could examine how to enhance investment in
infrastructure through country commitments and incentives in the regulatory
framework. He also pointed out that the G-20 agenda is getting over burdened.
"We need to refocus on a few goals rather than dissipating energies on too many
fronts unquote," he added.
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