Pax Indica: The G-20 opportunity

If you can’t fix the institutions that are supposed to fix the world’s problems, use new ones

In today’s Pax Indica column, I argue that “India must use the G-20 to present the UN, the World Bank and the IMF with a simple choice: reform or face irrelevance.”

Like Groucho Marx who didn’t want to belong to any club that would accept him as a member, there is something aspirational about getting into the coolest clubs, universities or corporations, and in India’s case, the UN Security Council. But why waste time and energy trying to get into something that would rather go belly-up than accept you as a member, when you already belong to a club that, with some effort on your part, can be the most powerful club in town? [Yahoo! India]

Getting Colombo to listen

Post-war Sri Lanka can’t do without strong bilateral ties with India

Western countries are considering blocking an US$1.9 billion IMF load to Sri Lanka, not least due to pressure from human rights groups and Tamil diaspora groups. The Sri Lankan government, whose public finances and balance of payments are under pressure both due to the war expenditure and the global economic crisis cannot hope to entirely rely on China, Pakistan, Iran and Libya—countries that have provided military and economic assistance in the last few years. Colombo knows that it needs a good bilateral relationship with India not only to drag its economy out away from the approaching rough weather, but for long-term prosperity.

Many analysts lament that New Delhi has lost its leverage over Colombo. Here’s the way to regain it: the new Indian government must calibrate its bilateral relationship with the manner to the extent it listens to India. That includes encouraging President Rajapakse to rapidly move towards reconciliation, face down triumphal Sinhala chauvinism and deliver on his manifesto promise of equal rights for all Sri Lankans.

Pakistan awaits a bailout

And on the kindness of friends

Pakistan’s effective foreign exchange resources are down to US$3 billion—sufficient to cover about a month’s worth of essential imports. And other than a tranche of US$500m from the Asian Development Bank, it has received few firm promises. After Standard & Poor’s cut the country’s sovereign long-term foreign-currency rating to CCC+, with a negative outlook, it has become “the world’s riskiest borrower according to credit-default swap prices from CMA Datavision.”

The Friends of Pakistan, perhaps too preoccupied with the global financial crisis, have postponed this month’s scheduled meeting. Pakistan is sending a team to the United States, seeking US$10 billion of emergency assistance—at a particularly inopportune time. Even the Saudis—Pakistan’s traditional bailors—have stalled announcing the US$6 billion oil credit facility. The Saudis are very likely trying to teach the PPP government a lesson (even as they remain thick with Nawaz Sharif). There are no reports of China providing direct financial assistance. It is a member of the Friends of Pakistan group, and might lend through that channel.

The Pakistani government is attempting measures like securitising future remittances, but given its credit rating and the mood of the global financial markets, the success and the efficacy of such moes is likely to be limited. That leaves approaching the International Monetary Fund. But an IMF loan will come with the condition of an “intensive economic reform programme”. In Pakistan’s current political climate, trying to implement the kind of programme that the IMF will demand is a recipe for disaster.