Collective, yet flexible approach key for G20 success
The following is the transcript of the interview with Indian Ambassador to Korea Skand R. Tayal. ― ED.
By Lee Tae-hoon
The Korean government has vowed to prioritize the setting up of a global financial safety net and addressing the needs of emerging and under-developed nations. Could you clarify India’s position on those issues?
The recent economic indicators are positive and it appears that the immediate global and financial crisis is behind us. However, we require a global financial safety net to ensure that we are on the path of long term recovery which is not exposed to periodic shocks.
Sustainable recovery of the global economy depends on several factors. These include how the major economies fare, enhanced expenditure on infrastructure development, stable capital flows to the developing markets, energetic macro-economic adjustments and speeding up of financial sector reforms.
Global financial safety nets should be based on three pillars. The first pillar is a domestic safety net of adequate Forex reserves; the second pillar is regional and bilateral swap tools; and the third pillar is a global safety net encompassing a wider role for multilateral institutions.
Why is India critical of the bank levy system, which has been an issue of debate among the G20 nations? How can G20 nations resolve their differences on this?
The G20 must address issues like poverty alleviation, attainment of the Millennium Development Goals, and promotion of investments in developing countries especially in the infrastructure sector.
We appreciate that Korea will join other emerging countries at the G20 Summit to advocate programs for speeding up the growth of less developed nations. On the important issue of sustainable growth, the G20 is working through a group of experts drawn from several countries, including India and Korea.
We, India, earnestly hope that the Seoul Summit will deliver a workable framework for sustainable growth of all the countries, particularly developing countries.
It is important that G20 Seoul Summit conveys the resolve that regulatory reforms and timelines will be met.
We believe that tax payers’ money should not be used to rescue the financial sector. But each country may have its own solution and a banking levy or tax is perhaps not the appropriate solution.
For instance, in India, we have very strong banking regulations and our banks have to keep a Statutory Liquidity Ratio (SLR) of 25 percent and a Cash Reserve Ratio (CRR) of 5 percent.
Such measures perform the same function of reducing the risk of bank failure.
India has witnessed robust economic growth despite the global financial meltdown, which stemmed from failing sub-prime mortgage markets in the United States. What has made it successful in weathering the crisis that spread around the world?
As you pointed out India has hardly been hit by the ongoing global financial turmoil because banks were not exposed to bad assets.
If you look back in history, India was not affected by the 1997-1998 Asian financial crisis.
This is largely thanks to the country’s unique financial system.
Most of the banks are state owned and they are very pragmatic and conservative.
In other words, you can say they are very cautious.
The rate of India’s economic growth stood at 6.7 percent in 2009.
It is forecast to grow by around 8.8 percent this year.
A lot of liquidity has been in the market as the Indian government has taken various stimulus measures.
At present, the country is moving away from the stimulus and trying to reduce the money supply to curb inflation, which has become a major social issue as it jumped to above 10 percent.
Do you believe the dominant role of the U.S. and Europe in IMF quotas should be adjusted to allow emerging economies to play a larger role?
We have some concern that the IMF reform is not progressing as expected.
To move ahead, it is essential that the G20 provides clarity and removes ambiguity on this issue.
At the finance ministers’ meeting in June 2010 in Busan, India’s Finance Minister the Honorable Pranab Mukherjee had observed that the Pittsburg Summit Declaration has been subject to varying interpretations.
“We believe that the most crucial reforms are the quota and voice reforms in the IMF and all other reforms should flow from and follow it. The pace of other reforms should not hold back the reforms in the quota,” Finance Minister Mukherjee said.
He added that the IMF is a quota based organization and that this character must be retained.
India also believes that the heads and the senior leadership of the international banking institutions should be appointed through an open, transparent and merit-based process.
As an active member of G77 and the South Asian Association for Regional Cooperation, India is very conscious of the problems that other developing countries have encountered.
I’m sure Korea and India will be able to play a significant role in representing the voices of emerging countries and share their growth experience with less-developed nations around the world at the upcoming G20 Summit in Seoul.
How do you evaluate Korea’s hosting of the G20 Summit?
The hosting of the G20 Summit by Korea is a recognition of the growing prestige and statue of the country in the comity of nations.
Korea’s remarkable economic success has been admired by the world. Its transformation from a developing country to a member of the OECD has been exemplary.
Korea is also a strong force for peace and stability in the region and the world.
The Korean government, all its agencies as well as the civil society here are working to prepare for the G20 Summit in a very systematic and focused manner.
Several preparatory meetings at different levels have already been held and more are planned.
We hope that all world leaders would strive to promote global growth and development and address emerging imbalances while pursuing their national interests.
The proposal to have a Business Summit for the corporate leaders to be able to give their suggestions to the G20 Summit is a very welcome idea.
The Presidential Committee to prepare for the G20 Summit must be receiving numerous suggestions and inputs from various quarters.
India at a glance
Capital: New Delhi
Population: 1.19 billion
GDP(purchasing power parity): $3.57 trillion
Per capita GDP: $3,100
Exports: $164.3 billion
Imports: $268.4 billion
Unemployment rate: 10.7%
Inflation rate: 10.9%
(2009 estimates)