PM seeks major reforms of international financial institutions

Ahead of the G-8 meeting tomorrow, prime minister Manmohan Singh has called for significant reforms of the international financial institutions to address global problems and asserted that India would seek its due place in such institutions.

Singh, who will be meeting US president Barack Obama and other world leaders at the G-8 meeting with five outreach countries including India, said these institutions need to reform decision-making and ensure effective delivery to adequately reflect ground realities.

India, he said, was deeply committed to multilateralism and will "seek its due place, play its destined role and share its assigned responsibility, giving voice to the hopes and aspirations of a billion people in South Asia".

In an article in the compendium on contemporary global issues brought out for the summit, Singh said India will strive for the reform of the UN to make it more democratic.

"The Security Council has not changed at all and its present structure poses serious problems of legitimacy. The system of two-tiered membership, which gives a veto to the five permanent members i.e. the nations that emerged victorious after the Second World War, is clearly anachronistic," he said.

The prime minister noted that Germany and Japan, which have significantly larger economies than Britain and France, both permanent members, were excluded.

The prime minister noted that China was the only developing country in the P-5 which was there for historical reasons, not as a large and economically important developing nation.

"It is obvious that if the system was being designed today it would be very different. However, while the problems have long been recognised, efforts to reform the system have made little headway," he said.

Dwelling on the global financial crisis, he said it has brought out the deficiencies of the existing system of governance.

"It has forcefully exposed fundamental weaknessses in the approach to financial regulation which emphasised light regulation and greater reliance on inhouse controls and market discipline to control risk," he said.

Whatever the causes and specific failures underlying the crisis, the world was quick to realise that a crisis of this magnitude required a global solution, he said.

Singh also felt that major international groupings were not adequately represented. Referring to the G-8 plus five outreach countries, he said while "ad hoc" expansions of the grouping were a useful way of broadening the range of consultations, the expanded group was not cohesive and did not have special legitimacy within the UN system.

The grouping was expanded to G-8 plus 5 a few years back with India, China, Brazil, Mexico and South Africa being added as outreach countries. More recently some more were included as additional outreach countries.

Writing on "How the world is governed in the 21st Century - The vision of Emerging Powers of India", Singh said the problems faced by the institutions of governance charged with handling the financial system were also relevant for international institutions dealing with political and security issues, trade, climate change and others.

Observing that global institutions needed to update structures and upgrade work methods, he said "they need to adapt, adjust and accommodate to adequately reflect ground realities, contemporary aspirations, and pressing requirements of developing countries including emerging economies".

The prime minister also spoke of the unworkability of some of the existing structures leading to greater reliance on plurilateral groupings. such as G-7 which was later expanded to the G-8. They are seen as a group of countries with common interest, not necessarily representative of the global community.

"India, as the largest democracy in the world and an emerging economy that has achieved the ability to grow rapidly, remains deeply committed to multilateralism," he said adding it has been an active member in global institutions like the UN, Bretton Woods Institutions, WTO and IAEA.

The prime minister said that India would continue to fight against the scourge of terrorism and dismantling of its infrastructure on the basis of zero tolerance, combat piracy on the high seas and strive to achieve an early conclusion of the Doha Round of trade negotiations.