The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Abhishek Jain, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur
RBI Governor Raghuram Rajan’s pitching for institutionalizing an International fund for aiding the countries facing liquidity crunch at the panel discussion on the global financial safety net at the spring meetings of the International Monetary Fund (IMF) and the World Bank, is a welcome move.
As per Rajan this fund should be controlled by the IMF, he also said that India would be happy to be a part of such a Global Fund pooling arrangement.
Looking at the global scenario where small economies are facing issues in accessing short-term capital that may arise due to the myriad of reasons, this idea seems to have a lot of merits. At present these nations look forward to their neighbor’s help in mitigating their liquidity issues, and eventually, IMF interferes in the matter. The presence of a structured specialized body would ensure the coverage and proper timing of the required funds.
Another important issue that he touched upon was that how the present system of depending on local arrangements is deleterious as it not only sends weak signals to the investors and public of that country but sometimes also attacks the sovereignty of that small nation(because of the stringent conditions on which the advances are generally provided)
A Global arrangement would ensure that no such stigma is getting attached when a small economy is getting helped. And the resources and strategic decisions of these countries are not interfered by anyone. The SAARC facility can act as a model for such an arrangement, as a matter of fact, India is one of the key members of that facility.