IMF/World Bank issues

Distinguished Finance Ministers, the Secretary General, other Heads of delegations, members of the delegations and the officials from the Commonwealth Secretariat:

Distinguished Finance Ministers, the Secretary General, other Heads of delegations, members of the delegations and the officials from the Commonwealth Secretariat:

Let me at the outset express my sincere thanks to the Government of Sri Lanka for their gracious hospitality and excellent arrangements.

2.The IMF and the World Bank have been with us now for six decades: advising, cautioning, cajoling, and lending to the nations of the world. While we acknowledge the role played by the two institutions, we also note that there are issues concerning their structure and management. On the issues of immediate concern - especially on the eve of the Annual Meeting - we need to focus on three aspects. First, participation in the management of these institutions has to undergo a change to reflect the current global realities more accurately. A flawed structure will increasingly undermine the effectiveness of these institutions. Second, the challenge before the world today is to meet the increasing aspirations of the vast majority of the people for freedom from hunger and for the bare minimum necessities of health and education. Third, there is a growing urge among the member countries to negotiate the development curve in a compressed time frame. The relevance of the IMF and the World Bank would eventually be determined by their ability to play a meaningful role in these areas.

The IMF Issues
Quota and Voice

3.My Government firmly believes that any exercise intended to enhance the credibility and legitimacy of the IMF has to be based on fundamental reforms in the quota structure. India has always held that the developing world deserves to have much greater 'Voice' in the management of the International Financial Institutions.

4.It is widely believed that the present 'Quota' formula of the IMF is hopelessly flawed and outdated. Obviously, an ad hoc quota redistribution based on this flawed formula cannot provide a durable solution. We need a consensus on a new formula. And we need it quickly. There must be a deep commitment to fundamental reform and there should be no postponement of a comprehensive review.


5. The Managing Director's Report states that the new formula should clearly reflect the economic strengths of countries. This is something all developing economies strongly endorse, and I urge you to join me in Singapore to articulate our united view on this matter. The issue of implementing a new quota formula is also linked to amendments to the Articles of the IMF on Basic Votes. I am hopeful that we shall all be together - united, strong and persuasive - in proposing a road map which enhances the 'Voice' of the developing community, and that a consensus on this will emerge at Singapore.

The Fund's role in the Low-Income Countries (LICs)
6.We expect that the Fund will continue to remain fully engaged in the multilateral effort to help its low-income member countries achieve the Millennium Development Goals (MDGs) and address the issues of ensuring debt sustainability with supportive policies. We welcome positive developments in the Fund's policy advice to LICs which is becoming more focused on sustainable growth. We also appreciate the Fund's proactive approach towards the implementation of the Multilateral Debt Relief Initiative (MDRI) and the development of an operative Debt Sustainability Framework (DSF) for low-income countries.

The Fund's Role in Emerging Market Economies
7. Many emerging market economies have raised significant amounts in the international capital markets. There is a need to safeguard these economies from any vulnerability to changes in market sentiments or reversal of capital flows. Clearly, a mechanism to provide liquidity support to such countries in the event of a contingency would go a long way in preventing a crisis. In this context, we do see the need for a high access contingent financing instrument.

Surveillance
8. We note the Fund's work on deepening financial sector soundness and capital flows with particular emphasis on vulnerability. At the same time, we ought to recognize that there is a wide diversity in the level of development of the financial sector across Fund membership. A 'one-size-fits-all' approach would not be appropriate. Surveillance, however, should be even-handed and also cover spill-over effects of systemically important countries.

The World Bank issues
9. Moving on to the World Bank related issues, I would say that there is an unusual focus on governance and anti-corruption issues in the Bank's strategy. The Bank proposes to integrate it into the operational policies of all its affiliated institutions. We recognize the importance of this issue in the development dialogue. However, we would be unhappy if the new focus tends to obscure or negate the Bank's historical 'development-centric' approach.

10.Being multi-dimensional, governance requires a customized response to the relevant issues in each country, based on local knowledge and possibilities. We must not lose sight of the risk of overemphasizing governance issues to the detriment of the Bank's core mission. We cannot abandon countries with somewhat weak governance structures and ask them to wait indefinitely. The Bank must recognize that fortifying country systems and institutions for governance and anticorruption is the only way to effect sustainable improvement. It should also be remembered that governance improvement is a continuous process and there are no short cuts to governance.

Fiscal policy for growth and development

11. Admittedly, infrastructure deficit is one of the major impediments to growth in many developing countries. While well-targeted investment in the infrastructure sector by the governments will continue to be an imperative, there is a need to increasingly engage the private sector in this endeavour through innovative approaches, including Public-Private Partnerships (PPP). India has been experimenting with PPP in recent years. Our experience has been quite encouraging. The Bank can help in devising suitable interventions which will help bridge the infrastructure gap. Some steps have been taken to increase the Bank's participation in infrastructure development in developing countries. Clearly, there is a need to do more.

The World Bank's engagement with Middle-Income Countries (MICs)
12. Over 70 per cent of the world's poor live in the Middle Income Countries (MICs). The Bank has to remain actively engaged with these countries. This is essential for the fight against poverty to succeed. Over the last few years, to address the concerns of MICs, the Bank has taken some steps such as reducing project processing time and offering a wider menu of financing instruments. However, a lot of ground still remains to be covered. The issues such as over-design of projects, transaction costs and lending rates need to be addressed.
13. Let me end by reiterating that I believe that structural reform reflecting the current global realities will invigorate the operations of the IMF and World Bank. This will also provide a decisive impetus to our efforts to achieve the Millennium Development Goals. I am sure the deliberations in this august forum will pave the way for consensus on this issue, and that the consensus that we may reach here in Columbo will be articulated when we gather again in Singapore.

Thank you, ladies and gentlemen.