India worried over resource transfer from poor to rich nations

Concerned over the growing transfer of resources from the poor to rich countries, India has said creation of an economic and financial environment conducive to development is the need of the hour.

Addressing a United Nations committee, its delegate Santosh Bagrodia, member of Parliament, blamed the policies followed by the Bretton Woods Institutions -- the World Bank and the International Monetary Fund -- for reverse flow of resources and called for reforming them to give more voice to the developing nations.

"We have repeatedly stressed on the need for urgent reform of the BWIs in order to provide greater legitimacy and increase the effectiveness of these institutions," he said.

"The reform must enhance the voice and participation of developing countries in these institutions, thereby responding to the needs of concerns of the majority of countries affected by their operations," Bagrodia said.

Expressing "grave concern" that net transfer of resources from developing to developed nations continued for the 10th successive year last year, he said the international financial architecture appears to "support and encourage" such flows.

"Worse, this resource transfer is steadily increasing, and has now reached $0.6 trillion," he said stressing, that this "gigantic sum" of money would have been better utilised in promoting poverty eradication in developing countries.

This, said Bagrodia, is the direct consequence of conditionalities imposed by the BWIs, which later proved to be harmful.

"We have been witnessing a growing trend among borrowers to pre-pay their loan obligations rather than continue with BWI mandated 'policy packages'," he said stressing, the "urgent need" to address the fundamental structural problems of the international financial architecture.

While the IMF has taken some initial steps towards reform in September 2006, he said the process must be carried to its logical conclusion.

Conceding that there has been an increase in private sector flows to developing countries, Bagrodia pointed out that they do not offset the outflow of resources from developing countries.

"Such flows also include speculative portfolio and equity investments, which are subject to flight at short notice, at the first signs of turbulence," he told the committee.

Thus, he said, the imperative of enhancing and predictable financing for developing countries has not been achieved.

Moreover, private flows are not attracted towards social sectors and other development related sectors.

In this context, Bagrodia stressed on the need to enhance Official Development Assistance.

Regrettably, he said, the trend in this regard is negative, and far below the agreed target of 0.7 per cent of Gross National Income and projections for future increases in ODA are also pessimistic.

Besides, he said debt relief has become a significant component of ODA.

"In a strange irony, countries with large arrears and, thus, needing the maximum assistance, have benefited the least from debt-relief in terms of freeing resources for development," he said.

Debt sustainability, he stressed, must be defined in terms of being able to service the debt as well as allocate resources in order to meet the Millennium Development Goals, rather than being limited to subjective judgments on good governance.

"Given the recent turmoil in financial markets of developed countries caused by esoteric financial instruments, we would also caution against exotic new debt instruments," he told the delegates.

The turmoil, he said, has also highlighted the need for greater surveillance in the international financial system.