Agencies
: Los Cabos, Tue Jun 19 2012, 08:51 hrs
India today
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.
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.
India has
previously pledged to make contributions to the bailout fund but did not
disclose the exact amount of its contribution to the fund.
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
fund.
"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.
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.
Calls 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 said.
"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 and response.
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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