Briefing by Dr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission in New York
September 26, 2008
MEA Official Spokesperson: Please take your seats. A very good afternoon to you, notwithstanding this light rain outside. Welcome back to the Media Centre. We have Deputy Chairman of Planning Commission, Dr Montek Singh Ahluwalia here to talk to you about Prime Minister’s meeting earlier in the day with Prime Minister of UK, Mr. Brown. Deputy Chairman has also agreed to take a few questions after his opening remarks. Thank you.
Deputy Chairman: Thank you very much. Well they had a fairly good meeting, about 40 minutes or so I think. PM Brown congratulated Prime Minister on his Birthday. Good way of beginning the meeting. Then they had a very fairly wide ranging discussion on a number of issues which obviously touched on things like Millennium Development Goals, quite an extensive discussion on the current turbulence in the international financial system and what can be done about it. They had a discussion also on the Doha Round prospects, what are the issues that might be holding our progress and then a general discussion on neighbourhood; Afghanistan, Pakistan etc. I think most of the discussion focused really on international sector issues and trade. Both PMs agreed that the international turbulence in the financial system is quite exceptional and many people in the market think that things may be more serious than many people are making out. I think they both agreed that this showed that there was a fundamental weakness in the system of multilateral surveillance. The globalization has produced an integrated financial world around the world which does not have a single monetary authority that becomes responsible for taking care of global problems. PM Brown mentioned that International Monetary Fund (IMF) is the only institution that looks at these things but you know the circumstances today are quite different from what the IMF was supposed to deal with. I mean IMF lends to countries but today what you have is financial fragility which leads to weaknesses in financial institutions and maybe loss of market confidence in certain kinds of financial instruments.
So what is an appropriate way of handling that? We have to think about. PM Brown mentioned that in the aftermath of the East Asian crisis, there was a perception that better financial regulation and supervision was necessary and several mechanisms for international consultation were put in place including the financial stability forum. Our PM pointed out that earlier financial crisis used to take place in the periphery leaving the center largely unaffected.The difference this time is that the international crises is taking place at the centre of international system and many of these institutional mechanisms of inter-governmental consultation are not very effective in dealing with problems when they emerge at the very centre of the financial system. So the whole issue of what is the kind of international consultative process that needs to be put in place was discussed. Both Prime Ministers raised some questions. PM Brown mentioned that obviously the system must go beyond the G-8 and he felt sure that India will agree with that, of course, our PM agreed that it has to go beyond the G-8. PM Brown said well perhaps that this could be handled in G-20 where India is also a member. I think the question also came up that if you really need massive supply of liquidity then is there a case for setting up some kind of International Central Bank in which different governments actually contribute which could then act to provide liquidity because at present everybody agrees that there is a problem but the actions have to be taken by individual Governments even though the action of the individual Government will affect financial stability around the rest of the world.
I think an effort to shore up certain kinds of assets that will have the balance sheet of all institutions that hold those assets not just institutions in America. So these kinds of issues were discussed more in the form of raising questions which suggest that the present international financial architecture is really not adequate. Obviously there were no decisions taken but our PM assured the British PM that we would be happy to work with them in looking to what might be appropriate solutions. They spent a fair amount of time also on the Doha Round with both Prime Ministers emphasizing the importance of getting the Doha Round successfully concluded. There was a brief discussion on what are the issues that might be holding up agreement. They touched on the question of the Special Safeguards Mechanism (SSM) which has been discussed. I think they also noted the point that although much of the international discussion the press has focused on the SSM issue where different countries have taken different position and there are some proposals which have recently been tabled by Australia, by the EU and by Brazil to which China, India and the US have yet to give a final reaction. But it was also pointed out that these were not the only issues that are several other issues including for example in agriculture, issues like the cotton subsidy which will become very controversial which really have not been discussed so far. I think they agreed to remain in touch on these issues so that if there are areas where our positions are narrowing it would be possible to come to a quick resolution. Prime Minister Brown apparently will be in touch with US President and they are obviously also concerned about this matter.
So I think it was a sharing of perceptions at Head of Government level on what is the status of the round and what are the issues that appear to be currently most immediate ones that need to be resolved. I think that is roughly the areas they covered and I will be happy to take any questions.
Q : What about any political issues that come out during the meeting, like terrorism or something?
A : They discussed the problems of terrorism. Our PM pointed out the extent to which terrorism is surfacing in our neighbourhood. It is a matter of obvious concern to us and PM Brown agreed that this is a major problem, and I think there is a shared perception on that basically. But we need to do something about it. There are lots of cross-border issues that also need to be addressed.
Q: If you could please qualify this a bit like you mean that the two PMs explored the possibility of an international bank that would safeguard the free supply of liquidity. How exactly it would be different from the World Bank, IMF etc?
A: A very good question. World Bank only lends to developing countries and it lends for development projects. So the World Bank is not relevant here. What is relevant here is the International Monetary Fund. Now the IMF, first of all, its total capability to lend is nowhere near adequate to plug a liquidity hole in the financial system. I don’t know the numbers but you know it is unlikely that the Fund can lend more than a total of 70-80 billion whereas the United States alone is talking of a rescue package of 700 billion and there are people saying that it may not be enough and US has taken the view that other countries, other major countries should take preemptive steps to shore up their banking system and if that were really done then it would really be on a scale of resources required much larger than the IMF. Second the IMF traditionally lends to Governments. So Governments borrow from the IMF, whereas in today’s world financial instability is the result of private financial institutions running into either liquidity or insolvency problems. So the IMF, for example, if it were decided that a particular class of assets, as is the case here, real estate based assets have run into a serious dis-functioning of the market and to restore confidence it is necessary to buy these assets. The IMF just cannot do that. So even the IMF is not structured either to lend to banks or to intervene in financial markets in order to calm the fears of liquidity. So it is in that context that the question arose that either we leave it to individual central banks which are treasuries, I mean, at present, the US treasury and the federal reserves are engaged in getting through that process. A very major, one may call it a bail out plan and I know people don’t’ like to use the term bail out, just say a financial rescue package. You can have a system where individual governments do whatever is necessary.
But at the moment there is no coordinated consultation mechanism that enables governments to say look that we will do this and you will do that and you do. One approach will be that you need better coordination so that coordinated action can be taken. And obviously if the action is coordinated it will increase the confidence level in financial system. The other approach might be that the form of coordination is not just consultation which enables sovereign governments to take the individual decisions in a coordinated manner but rather coordination in the form of action by a global authority. I mean, for example, if different governments are all going to pump x hundred billion dollars of liquidity they could just easily have an international institution run by them which pumps this liquidity in a more or less the same way, only thing is it will become much more transparent. The rules will become more global and those kind of issues and that will be a completely new idea. I don’t think neither of them says this is what they think is necessary but it was clear that existing system is simply not geared to addressing this problem. I think our PM said that the world has become global and capital has become the most global because paper issued in one country can be held by banks in other countries so you have got a seamless system but you don’t have international financial regulation. Regulation is being done by individual supervisors and the degree of supervision varies, the accounting rules vary and one of the new problems is that you know instability does not just come from the bank.
I mean in this country, for example, the investment banks which are not regulated have a huge amount of leverage so the amount of credit that goes through the investment banks is now much larger proportion relative to commercial banks than it was 10 years ago. In Britain they have introduced the financial supervision agency authority which does consolidated supervision of the financial system. In this country, in the United States that is not true. I mean the banking supervisors are different from the insurance supervisors are different from the security supervisors which is the same thing in India. So you know the whole question that comes up is what is the new architecture we want, which is the right model and how do we create a structure which is suited to a system dominated by the private sector. It is not just a question of government’s borrowing in order to fix the problem.
Q :But the two leaders just wondered all that? What I mean they did not ask for it.
A : I don’t think they are making a statement but they are exchanging views. One thing is very clear. I think both of them agreed that the existing international financial system is not serving the purpose. They are exploring alternatives. I mean these are not completely new ideas. For example, Jeffery Garton in the Financial Times today has a column where he says is this the time now that we had the new World Monetary Authority and the International Central Bank. So people are aware that new ideas are being tossed around and I think what they agreed was Premier Brown said that this has to be solved, methods of resolving the problem have to go beyond consultations in the G-8 and he asked the PM do you agree with that. Of course, the PM said I agree entirely it must include more countries than the G-8. Then he said that may be the G-20 which is a forum where India is represented, China is represented, Brazil is represented and lot of other countries. May be that is one forum but then they left it at that. What our PM said is that we would be happy to work with the British in exploring any concrete ideas that they may have.
Q : The two PMs you said discussed terrorism and also crossed border terrorism. Has PM Brown made any commitment about leaning on the Pakistani Government to ensure that the levels of cross border terrorism came down?
A :Well to be honest this is not my area and as the subject moved into it, for a brief moment I was not actually there. I think both agreed that this is not the occasion when assurances are being demanded but I think it was quite clear, I think it was a shared perception that it is necessary to bring this spread of terrorism, which seems to be coming out of Pakistan, under some control and I think beyond that both agreed that this is necessary. I don’t think any assurances on that issue was made.
Q :Mr.Ahluwalia deviating a little bit, remaining on the same topic of financial crises which has hit the United States. Could you tell us what is the advise of PM to President Bush yesterday when they met because we were told that President looked forward to meeting him as a very calming and serene influence on even economic issues and other matters. Could you tell us a little bit what they have been. Do you think what he might have said to the President.
A : You have been given extensive briefing by FS yesterday and I am not sure that I can add to it. I wasn’t there in the briefing but I don’t think that PM was giving specific advice on how to handle the financial crises but I think he did express appreciation that the US Government is not adopting a hands off attitude. I think it is no longer a situation where the US Government is saying well that is the market and we must allow markets to function and it is a clear perception that there is a market failure and whenever there is a market failure the Governments have to intervene and they are intervening but of course the issue is of how much, how and in what manner because these are the issues going through the American legislative process. We did not take any specific position on that but my recollection is that the PM appreciated the fact that the US Government is as it were stepping in to bring about an early resolution of the crisis because it is in our view essential that that should be done, restoration of financial confidence is a pre-condition for healthy continuance of growth in the global economy and right now the financial sector is a major area of vulnerability. So we were really complementing, the PM was complementing the President for taking a very pro-active approach but not giving any specific advice on what to do.
Q :Referring to the Financial Times article today, in the same paper the German Finance Minister was commenting that the present financial crisis of the US is leading towards a multi-polar world. US will no more be a super power. That is a comment published today. What is your perception.
A : This is going well beyond what the PM and PM Brown discussed. I would be happy to give you my views and comment on another occasion but this issue did not come up during the meeting with PM Brown.
Q : You have told that PM has not given any specific advice. Did Mr. Bush gave any advice on rising inflation in India.
A : I don’t think. These kinds of specifics were actually not discussed. You know this was a very rich and broad based discussion in the meeting with PM Singh and President Bush. They were actually reviewing the entire gamut of Indo-US relations and the many many areas where cooperation has increased and of course, the prospects assuming that you have a successful outcome in the legislative process on the Nuclear deal and the new area of cooperation in that area also but not how to control inflation. I think we are reasonably confident that inflation will get under control.
Official Spokesperson : Last two questions please.
Q :Today is PM Manmohan Singh’s birthday. Has he received a gift from PM Brown? If so, what it is.
A : I am not aware of that. He did receive greetings from PM Brown. JS (XP) will probably find out the truth of that and let you know. It was not while I was there.
Q : There is lot of talk about 123. In yesterday’s meeting between Prime Minister and President Bush. Was there anything on the 126, the MMRCA?.
A : I don’t think specific things like that were being discussed.
Thank you very much and enjoy yourselves.