Relatively, key emerging markets and other developing countries have moved to a faster growth trajectory such as to become the driving force for the global economy, at any rate for the medium term. This has implications for a reshaping of future global economic relationships to which the developed nations are getting, if grudgingly, reconciled.

Post-crisis problems are galore for both the traditionally richer and poorer economies, the former burdened by massive deficits and debts which would endure for the long term and result in decline in the power and influence they had hitherto commanded over the rest of the world. For the developing countries, especially emerging economies, the challenges are to remain resilient to continuing global financial shocks and rely, in the main, to domestic-demand led growth as partners toward the globally-endorsed goal of “strong, sustained and rebalanced growth of world economy”. At the same time, the latter have begun to assert their status for an equitable sharing of decision-making powers in the global framework - G-20 - or in the multilateral financial institutions.

A sense of urgency in reforming these institutions to gain greater credibility and legitimacy was reflected in the deliberations of Finance Ministers and central bankers at the spring meetings of the International Monetary Fund and World Bank (April 24-25) where developing countries demanded a larger share of quotas and representation for emerging economies and other developing countries so as to reflect their relative economic weight and current realities. Overshadowing the meetings was the financial collapse in Greece whose contagion was spreading to other European countries including Spain, Portugal, and Italy.

The euro-zone with a single currency, euro, has been shaken to its foundations by the Greek crisis and European leaders were working jointly with IMF to arrange a massive bail-out which may have to extend beyond Greece.

IMF had noted early in April that while threats to global financial markets had subsided, risks were spreading from private to sovereign debtors with fears of possible defaults in any of the advanced economies (not excluding UK or USA) which had accumulated debt rapidly in overcoming recession along with deterioration of fiscal positions. All such countries were enjoined to communicate credible medium-term fiscal consolidation and debt reduction plans.

There has not been tangible progress yet on the programme of actions set out by the G-20 Pittsburgh Summit in November last on balanced global growth, financial regulatory reform or financial sector contribution to bear the costs of extraordinary government interventions G-20 Finance Ministers meeting in Washington on April 23 said a set of policy options would be delivered for consideration at the next Leaders' Summit in June in Toronto, Canada. IMF had been asked to provide an assessment of how far G-20 countries have moved in the directions of objectives of previous G-20 Summit, especially on strong, sustained and balanced growth to reduce global growth and payments imbalances.

IMF's Ministerial policy-making committee (IMFC) reviewed the world economic outlook, the mutual assessment programme (MAP) based on an initial report from the Fund as well as its tentative proposals on taxation of the financial sector for a “fair and substantial contribution” towards ensuring stability of the firms and reduce uncertainty for creditors. The Finance Ministers have urged IMF to deliver the quota (enlargement) and governance reforms by November 2010 when G-20 leaders will hold the second summit for the year in Busan, Korea. G-20 has already set a deadline, January 2011 for completion of the quota review processes.

Developing countries at their meetings (G-24) had urged both IMF and World Bank to come up with reforms which would reflect the relative economic weights of all countries and which would also give the institutions greater legitimacy. At the IMFC, speaking for India, RBI Governor Dr D Subbarao called on IMF to revise its “flawed” formula for quota realignment, and reiterated the demand for a seven per cent increase in the quota shares in favour of emerging economies and other developing countries as a group.

At the joint IMF-World Bank Development Committee, the Ministers endorsed an 86 billion increase in the Bank's capital and a rise in voting power for developing countries from 44 to 47.19 per cent. World Bank President Robert Zoellick welcomed the endorsement as “crucial” for the institution's legitimacy and said the extra capital could be deployed to create jobs and protect the most vulnerable through investments in infrastructure, small and medium enterprises and safety nets. The Bank Group had committed over 100 billion dollars to crisis-hit countries between July 2008 and February 2010.

Under the revised distribution of shares among the 186 member-countries of the Bank, China's share is 4.2 per cent and it becomes the third largest share-holder after USA and Japan. India takes the 7th place in shareholding (2.91 per cent) and would be able to secure larger quantum of loans of the order of 7 to 10 billion dollars a year, irrespective of whether India needs to borrow as much in any given year. But India would have a greater say in decision-making, especially on lending strategy for the developing world as a whole.

Mr Zoellick in a speech a week before the Fund-bank meetings advanced the view that there is no longer a “Third World” or North-South syndrome, as “we are now in a new fast-evolving multi-polar world economy” but he noted global poverty cannot be wished away and must be addressed. He pointed out developing countries would represent an ever-increasing share of the global economy and provide important source of demand for countries grappling with post-crisis recovery. Multilateralism was getting “modernised” he observed in relation to the reforms that the two institutions were now going through.

According to latest IMF data, 33 advanced economies accounted for 54 per cent of world output and 66 per cent of global trade while the share of emerging and developing economies had risen to 46 and 34 per cent respectively. But this can in no way diminish the levels of development and sharp income and other disparities. Developing countries through their own weaknesses and inability to forge a united front failed in their ambitions of earlier decades for a new equitable world economic order, or goals such as collective self-reliance and allowed themselves to be swept away by forces of globalisation. There are a few stand-outs. So much that India, once a champion of the “third world”, at the forefront, fast forwarded its entry into market-led globalisation. Each country is now best left to itself to struggle for a place in the sun. (IPA Service)