PM to tell West not to get into 'protectionist cocoon'

WASHINGTON: India will propose common global prudential and regulatory standards for financial institutions at the G-20 Summit here on Saturday and is expected to bluntly tell the West reeling under the economic crisis not to get into a "protectionist cocoon" and instead encourage free flow of goods, services and capital.
    
Prime Minister Manmohan Singh is likely to tell leaders from countries like the United States, Britain, France and Germany that the economic crisis should not be used as an excuse to adopt protectionist policies.
    
Articulating New Delhi's position, Finance Minister P Chidambaram, accompanying the Prime Minister, explained that getting into a "protectionist cocoon" would be the worst way to resolve the crisis.
    
US President George W Bush has called the G-20 summit this weekend that will bring together leaders from 20 of the world's biggest developed and developing economies to discuss ways to tackle the global financial crisis, including possible recession and massive job losses.
    
"If we can agree upon a common prudential and regulatory standards and then ask national regulators to apply those standards, there can be some kind of a global oversight, where the national regulators are doing their job," Chidambaram said.
    
"It is very important that the few countries that can drive economic growth and other countries which have got on to the bandwagon of development should not suffer. These countries should not be made to suffer," he said.
    
Chidambaram said more resources must be made available to these countries, including India, so that they continue to grow and drive others' development.
    
Chidambaram said India feels that there is a need for the world to move towards a new order of global investment which is possible only by greater inclusivity in the international financial system.
    
"In many ways the International Monetary Fund (IMF) has been unable to be an early warning system. The G-7 is too narrow and too small. An inclusive system which can serve as a global oversight and serve as an early warning system is needed," he told reporters accompanying the Prime Minister.
    
Asked if he was talking about a global regulator, Chidambaram said regulation in the present context was a function that national regulators would loathe to give up.
    
Chidambaram noted that Prime Minister has made it clear that to overcome the current financial crisis, three points had to be dealt with -- the need for greater inclusivity in the global financial systems, to ensure that the growth prospects of the developing countries do not suffer and to avoid protectionist tendencies.
    
"The key point is we must move towards a new order of global investment. This can become possible only by greater inclusivity in the international financial system."
    
He said while the world grapples with the economic crisis, the countries most affected by it find their growth prospects hampered.
    
"We must not forget that there are only a handful of economies that are driving the world's economic growth," the minister said, citing India and China as examples.
    
Some others also have the ability to become drivers of growth, but they too are affected by the economic crisis, he said.
  
"The crisis should not be an excuse to go into protectionist cocoon. That will be the worst way to resolve the crisis. We must try to encourage free flow of goods and services and we must continue to enhance the flow of capital," Chidambaram said.
    
Chidambaram noted that Singh has emphasised that this is not the time to adopt protectionist policies. "This would require deep thought and deliberation and quick agreement among the leaders."
    
He said nations should agree to locate resources and also agree upon the channels through which this resources would be made available and diverted to the developing countries.
    
"These could be existing multinational institutions or we could devise an ad-hoc fund dispersing mechanism and finally the international institution, which constitutes the global financial architecture, must be reformed."
    
Chidambaram felt that he did not think regulation of the world's financial system could be raised to a global level.
    
"That will be too ambitious and perhaps not possible in today's context," he said, adding there must be some ways by which countries would have a global oversight with commonly accepted regulatory and prudential standards overseen by national regulators.
    
"These are things that are to be talked to. These are formative ideas," he said ahead of the G-20 meeting, in preparation for which Planning Commission Deputy Chairman Montek Singh Ahluwalia and Department of Economic Affairs Secretary Ashok Chawla are already here.
    
Chidambaram said in retrospect it was clear that if there had been effective surveillance mechanism, it could have identified the huge risks that had been taken by some international financial institutions.
    
In the absence of such a surveillance or oversight mechanism, these financial institutions, some of which collapsed, took unacceptable risks causing a crisis in US.
    
"So what we talked about in Sao Paulo (at the G-20 Finance Ministers' meet) or what we will talk about in Washington and can agree upon is such a global oversight mechanism. I don't know what shape it will take. But we need to talk about it," he said.