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VIEWPOINT: KAUTILYA
Gurdwara
IMF-Sahib
While our economy may not be globally competitive,
some Indian economists are
By Jairam Ramesh
After over
eight years of discussion, the International Monetary Fund's (IMF) independent
Evaluation Office (EVO) will finally become operational from July this
year. This is a move to make its governance more effective and transparent.
The first incumbent of this crucial post will be the distinguished Indian
economist, Montek Ahluwalia, now member of the Planning Commission.
 Ahluwalia
assumes charge when the organisation is in transition and turmoil. Its
deputy managing director for the past seven years and a great economist
in his own right, Stanley Fischer, has just decided to call it quits.
So have the IMF's Chief Economist Michael Mussa and Jack Boorman, who
heads its powerful policy review department. A commission set up by the
US Senate and House of Representatives under the chairmanship of Allen
Meltzer two years ago had recommended radical changes in the way the IMF
functioned. The Meltzer Commission favoured a smaller IMF. It was highly
critical of the IMF's role in putting together bail-out packages for different
countries, saying that the knowledge that such bail-outs will always be
available encouraged wrong economic policies-what economists call the
"moral hazard". The Clinton administration had opposed these
proposals but there is much support for them in the Republican camp. Academic
economists of great repute like Jagdish Bhagwati, Martin Feldstein, Joseph
Stiglitz and Jeffrey Sachs have been very critical of the IMF. With globalisation
under siege in the western world, the heat has been stepped up against
the IMF (and the WTO) among NGOs and in the media.
Technically, Ahluwalia is not joining the IMF.
He will not be an IMF staff member nor can he hope to become one after
his tenure at the EVO. While operating at an arm's length from it, he
is answerable only to the IMF's 24-member Executive Board that represents
183 member countries. What makes his appointment all the more prestigious
is that it is the Executive Board that sought him out after a global search
exercise.
There were three specific factors that went
in Ahluwalia's favour. First, he has been a well-known figure internationally
for over two decades, both as a pragmatic policy-maker and as an academic
whose research on poverty is standard reference. Second, he has been closely
associated with two of the more successful IMF programmes-in India in
the early 1980s and then in the early 1990s. Third, he has made outstanding
scholarly contributions to the ongoing debate on the global economy. In
September 1999 he produced a brilliant piece for the Commonwealth finance
ministers' conclave in the Cayman Islands which was publicly released
in April 2000 under the title "Reforming the Global Financial Architecture".
Earlier in February 1999, he had written another classic "The IMF
and World Bank in the New Financial Architecture" for the G-24 group
of developing countries.
Argentina and Turkey are now going through IMF
programmes. Mexico, Brazil and east Asia are considered by the IMF to
be successes, although some economists have argued that in Malaysia, which
did not go to the IMF, the recovery has been less painful than it has
been in Thailand, Indonesia and South Korea which sought the fund's help.
Russia is seen to be a failure although there is evidence to suggest that
the IMF was pressurised into continuing with the programme by the Clinton
administration, calling into serious question the role of the IMF's board,
Ahluwalia's bosses. On Turkey, a contrary view is that the fund's intervention
is a mistake and that the Turkish lira should have been allowed to depreciate.
Ahluwalia's post mortem of all such programmes will have major repercussions.
IMF also has a surveillance role. But it clearly
failed to fulfil this role in Thailand in 1997. How this can be improved
to prevent crises is something that will be on Ahluwalia's agenda. He
will also have to grapple with the basic issue of conditionalities. Conditionality
is the link between IMF financing and specific actions by borrowing countries.
Some believe that the IMF's conditionalities are wrong. In east Asia,
for example, the argument is that the IMF insisted on a tight fiscal policy
and caused a recession, an admission made by Fischer himself recently.
Others think that the conditionalities should be based on actual outcomes
rather than on promises made by borrower governments which are not fulfilled,
as in the case of Russia. The IMF's foray into political issues like governance
and corruption has also become controversial. In Turkey, it has insisted
that all coalition partners in the government sign the IMF agreement.
At a time when the IMF is going through convulsions
and when the debate on a new global financial system is likely to intensify,
Ahluwalia will be strategically positioned to exercise decisive influence.
India's loss-hopefully, only temporarily-will be the world's gain.
(The author is with the Congress party. These
are his personal views.)
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