Prime Minister Manmohan Singh used diplomatese to reiterate on Thursday that India supported an intervention by the IMF, but he made that gesture of support subject to several ifs and buts. “We strongly support the IMF playing its part in restoring stability in Europe. At the same time, the IMF most also keep in mind the liquidity requirements of developing countries who are not at the centre of the crisis, but may nevertheless be adversely affected as innocent bystanders,” Dr Singh said.
Unlike China, India lacks the financial wherewithal to single-handedly bail out Europe. It’s own development needs, riding the crest of growth, are huge. Some estimates, endorsed by the likes of former British premier Gordon Brown, suggest Europe needs at least $2.74 trillion in bail out cash to put its finances firmly back on track, but the IMF has free investible resources of only about $250 billion which it must spend wisely and not fritter away on a spendthrift countries like Greece.
Explaining the PM’s position, his sherpa at G20, Planning Commission deputy chairman Montek Singh Ahluwalia, said at a media briefing that resolving problems of lack of solvency required the country in question to be responsible for good housekeeping. For Greece, and by extension for the whole of Europe, they must first put their financial house in order. Referring to his personal pre-Summit engagements, Ahluwalia said, “I have said it is the job of the IMF to do surveillance of the euro zone and help identify and solve the problem.”
What this means is that IMF can only lend when a country comes to it and says, “I have a problem, and I have done all this to be solvent.” To be able to be able to do that, the country in question would have to first open its finances to IMF’s scrutiny.
Asked if IMF could be an option of first resort, Ahluwalia said while it had been implicitly agreed that IMF would lend to individual countries, irrespective of whether they were members of a currency union, and an IMF bailout package could be put in place within a fortnight, there was an attendant need for countries to respect fiscal discipline. He said the euro zone had introduced common currency without common fiscal discipline. “It was important to put in place a system to put Greece back in place,” he said.