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PM calls for new global rebalance
Seoul, Nov 12 (IANS/PTI):
Published on 13 Nov. 2010 12:08 AM IST
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Indian Prime Minister Manmohan Singh left the South Korean capital Seoul Friday after attending the G20 summit where he called for a new global rebalance.
Manmohan Singh said funds from surplus nations can go to bridging the infrastructure gap in poor and emerging economies to avoid destabilisation.
He also warned against protectionism in the wake of unemployment in rich nations, while asking the G20 leadership to agree to what is called the mutual assessment process to determine what level of deficit or surplus is good or bad for each country.
“Problems facing us in rebalancing the global economy is well known,” the Indian prime minister told a plenary session of the G20 Summit here.
Since Thursday, the prime minister had a string of engagements including a bilateral meeting with his Ethiopian counterpart Meles Zenawi followed by another with Mexican President Felipe Calderon, besides British Prime Minister David Cameron and Canadian Premier Stephen Harper.
The Indian delegation includes Planning Commission Deputy Chairman Montek Singh Ahluwalia, Foreign Secretary Nirupama Rao and Finance Secretary Ashok Chawla.
The G20, originally formed at the level of finance ministers and central bank governors in 1999 after the East Asian economic crisis, has assumed significance after it was elevated to a summit-level forum in 2008 after the ongoing global financial crisis. Besides India, South Korea, the G20 comprises Brazil, the US and Canada, Argentina, Australia, China, France, Germany, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, Britain and the European Union.
India cautions against protectionism
In the midst of an ongoing currency war between the US and China, Prime Minister Manmohan Singh Friday asked the G-20 nations to avoid competitive devaluation and advocated that any resurgence of protectionism be resisted.
“We must at all costs avoid competitive devaluation and resist any resurgence of protectionism,” Singh said, addressing the Plenary Session of the G-20 Summit that opened here this morning.
While the US wants China to appreciate its currency yuan in line with market forces, the Chinese government is resisting the move as it would hurt the country’s exports. The currency war has prompted the US to weaken their currencies by pumping in more funds into the market.
Although India advocated the case for exchange rate flexibility, it did not support the US line of putting a cap on current account balance, proposed at four per cent of the Gross Domestic Product (GDP). India’s argument has been that it may not be easy to reach agreement on sustainable current account balances for individual countries given the structural differences of economies.
“Exchange rates flexibility is an important instrument for achieving a sustainable current account position and our policies must reflect this consideration,” the economist-Prime Minister said in his speech that was heard with rapt attention by world leaders, including US President Barack Obama.
Besides Obama, Chinese President Hu Jintao, British Prime Minister David Cameron, Canadian Prime Minister Stephen Harper, French President Nicolas Sarkozy and German Chancellor Angela Merkel are some of the world leaders attending the Summit.
The Prime Minister further added that countries with high foreign exchange reserves, “have a special responsibility to ensure that their monetary policies do not lead to destabilising capital flows, which can put pressure on emerging markets”.
China has the highest foreign exchange reserves at over USD 2.5 trillion followed by Japan at about USD 1.1 trillion. The other countries with high foreign exchange reserves are Russia, Saudi Arabia, India, South Korea and Brazil.
As regards the advanced economies with high deficit, Singh said, “(they) must follow policies of fiscal consolidation, consistent with their individual circumstances so as to ensure debt sustainability over the medium term. This means that fiscal correction need not be frontloaded everywhere.”
The Prime Minister also made a case for structural reforms for increasing efficiency and competitiveness of the economies.
“While structural reforms are necessary everywhere, these should increase efficiency and competitiveness in deficit countries, while expanding internal demand in surplus countries. This re-balancing will take time, but it must begin,” Singh said.
G-20, a grouping of industrialised and emerging economies, has been at the forefront in combating the impact of the global financial meltdown triggered by fall of the iconic American investment banker Lehman Brothers in September 2008.
Singh also told the global leaders that India will revert to pre-crisis economic growth rate of 9 percent in the next fiscal.
“I am happy to say that the Indian economy has rebounded fairly well from the crisis...We hope to achieve 9 percent in 2011-12,” he said.
As regards the current fiscal, Singh said the country was likely to clock 8.5 percent growth rate, up from 7.4 percent in 2009-10.
India was growing at 9 percent before the financial meltdown.
“We grew at 9 percent in the four years prior to the crisis, but slowed down to 6.7 percent in the 2008-09,” Singh said, adding that the emerging economies in Asia are now doing well.
“Emerging market countries have done well on the whole, and especially so in Asia,” he said.
Singh said the Seoul Summit is also delivering on the promise of reform of the IMF.
“We have agreed to a shift in quota shares of 6 percent to emerging market countries and the composition of Board is being changed to reduce the European representation,” Singh said.
“With the additional resources already provided to the IMF, we have not only provided the IMF with the firepower that it needs to perform its stabilisation role, but also moves it in the direction of greater democratisation,” he said.
The Prime Minister said further moves are necessary in this direction and India welcomes the decision to comprehensively review the quota formula by 2013 to reflect the growing economic weight of the emerging market countries.
“This should be fully reflected in the next quotasreview due to be completed by 2014,” he said.

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