Conflict in West Asia is escalating. What kind of a shock could this pose to global economy, on the mend right now?
So far, the impact has been quite limited. But escalation could create difficulties of an unknown variety. We’ve seen the sensitivity of the energy market to developments in the region. Diversion of shipping has had its effect at the world level. The main point is this needs to be contained. If it continues to escalate and spread, the impact could be negative at a time the world economy in many ways has been healing.
India has set a goal of becoming a developed nation by 2047. Is it doable?
Yes, of course. For those of us who’ve been coming to India for many years, it’s very pleasing to see India sustain a rapid pace of growth. There’s still many structural reforms to be implemented as the prime minister himself has pointed out, many areas that may make it easier to do business and make the economy more efficient. Much has already happened and what’s promising and encouraging is that with continued reforms, there is every reason to believe that the rapid rate of growth that India has achieved in recent years can be continued and sustained.
What more needs to be done to push the growth higher?I don’t know if the issue is to push the growth higher. What’s really important is to sustain the relatively rapid growth that India already is achieving. Of all the large economies, India is the fastest growing. It will be excellent if that record can be sustained. I think there’s a general agreement on continued deregulation and improving the business processes and the legal system. Infrastructure investment and continued adoption of advanced technologies-there are many avenues to improving India ‘s economic performance and sustaining this rapid growth.This is the 80th year of Bretton Woods. Do you think these institutions are as relevant now as they were?
Yes, of course. I think it’s easy to forget these institutions were created to be effective, to be able to operate, to be able to reach decisions even when there is not unanimous agreement among the membership.
Also, an aspect that is completely unique or unusual for the Bretton Woods institutions is that they were designed to continue to be effective in a changing world; in the sense that it is anticipated that its scope and the voting share and membership will evolve to reflect economic weight in the world as it develops.
They are designed not only to be able to act, but to continue to become more democratic in a broad sense, reflecting world development. At the same time, we can see that the financial world is changing as well and both the World Bank and the IMF interact very importantly with the sector. The challenges are new and the institutions are looking for ways that they need to adjust to accomplish their new challenges.
Are you satisfied with the pace of reforms especially in the wake of the report by the Independent Expert Group headed by N K Singh and Larry Summers?
The suggestions in the report are very useful and thoughtful. They need to be brought down to a ground level and worked out in detail. The Bretton Woods Committee and our multilateral reform working group recently put out a report. It tries to come down to an operational level and say what exactly are the issues and the aspects that need to be addressed to make these institutions able to act effectively. I’m happy to describe the results. For one, the report suggests some structural adjustment in both institutions to create a ministerial level council. This is actually foreseen in the IMF Articles agreement but would be innovative in the context of the World Bank. The idea is to add a level of ministerial level decision making on giving direction to the institutions. The idea is we know that important changes are needed that require serious political consensus. But secondly, we find that especially in the area of climate finance, where there’s a broad agreement that this is an issue that needs to be addressed instantly. So the question is, if we all recognise that, why has action been so limited and so slow? What our report suggests is that with regard to both public finance and private finance, there are three gaps that need filling. There’s an issue in the public sector governance that is there is some organisation or body that provides clear leadership on setting priorities. Secondly, there’s a gap of implementation. And, third accountability or assessment gap. Until some practical solutions can be found for these three gaps-governance, implementation and accountability or assessment-it seems difficult to think we’re going to make progress.
Emerging economies such as India have been raising the issue of representation at these bodies. How can this be addressed?
There are two things to say. One that for sure that’s correct. The idea of the organisation they are designed to be adjusting their governance to reflect, as I say, explicitly economic weight in the world. That’s not defined clearly, so that’s always going to be a matter of negotiation. But the idea is very clear and more progress needs to be done. At the same time, I think there has been frustration among many members at the very limited progress in some important areas that has been somewhat puzzling and disappointing. And what I’m thinking of specifically is the issue of sovereign debt restructuring, especially of developing emerging economies. The IMF and the World Bank have jointly created something called the global sovereign debt round table with the idea of bringing all the actors to the table in a confidential way for some clear discussions on how to move forward.