International Monetary Fund: Structure, Functions and Reforms

Post World War 2, the economy of most of the European countries as well as the U.S. economy was in shambles. In the year 1944, the representatives of 45 governments met at the Bretton Woods Conference in Bretton Woods, New Hampshire to discuss a framework for international economic cooperation and how to rebuild Europe. The conference led to the birth of three international organisations, namely, the World Bank, the International Monetary Fund and the General Agreement on Tariff and Trade, which was later renamed as the World Trade Organisation in the year 1995.
The IMF website describes the IMF as 'an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.' But one of the most important functions of the IMF in recent years has been bailing out member countries which are facing a BoP (Balance of Payments) crisis. India itself had to seek the IMF's help in the year 1991 when faced with the BoP crisis of 1991.

Structure of IMF
The IMF is governed and accountable to its 188 members. It consists of the Board of Directors, the Executive Board and the Managing Director. The Board of Directors comprises the finance ministers or central bank governors of all the 188 member countries. They meet annually to elect new executive directors, approving quota increases, SDR allocations, admittance of new members etc. The Executive Directors are responsible for the day to day activities of the IMF.  There are 24 executive directors out of which 5 directors are elected by the five largest quota holders. The Managing Director is the chairman of the Executive Directors and is elected every five years. The MD is eligible for reappointment and is assisted by an internationally recruited staff, operating from the IMF's headquarters in France.

Functions of IMF

• Surveillance of economies on a global, regional and national scale.
• Helping members recover from BoP crisis and in the process, strengthening international trade.
• Technical assistance, training and advisory role regarding BoP maintenance, forex reserve building etc.

Any member country facing a BoP crisis can seek short-term capital from the IMF to recover from the crisis. The IMF negotiates some conditions in exchange for the financial help, requiring the government of the borrowing country to correct macroeconomic imbalances through policy reforms. The member must adhere to these conditions most of which pertain to trade liberalization, privatization and cutting down on subsidies. The capital must be returned along with the interest over a period of time to the IMF. The rate of interest fixed by the IMF is 1.050%.

Special Drawing Rights
These are supplementary foreign exchange reserve assets defined and maintained by the IMF. The value of the SDRs are based on the exchange rate of four currencies (called the SDR basket). As of now the four currencies that form the basket of the SDR are the dollar, the euro, the pound and the yen. The exchange rates of each of the four currencies are multiplied by their respective weights and the value of the SDR is determined. As of now the value of 1 SDR equals 1.4 dollars. The weight is assigned to the currencies as per their importance in International Trade. The currencies and their respected weights are given below:
Yen - 9.4%
Pound - 11.3%
Euro - 37.4%
Dollar - 41.9%

IMF Quota
Every member of the IMF contributes to the reserves of the IMF and the IMF pays interest at the rate of 0.05% to its members. The amount contributed is called the quota and it is linked to the size of the economy, the GDP and the openness to international trade of that nation. Increase in quota, means increase in the SDR contribution which also gives more voting power to that member which it can use to elect executive directors, SDR allocations etc. Presently, the largest contributions are made by:
USA - 17.7%
Japan - 6.5%
Germany - 6.1%
Chinese quota stands at 4.0% while Indian quota is 2.4%.

IMF Reforms
There has been increasing demand from members of the BRICS countries for reforms in the quota allocation and governance of the IMF. The BRICS nations contribute 1/5th of the world GDP and also house 2/5th of the world's population. The quota alloacted to them is very less in contrast to their importance and enormity in the world economy. In the year 2010, the IMF proposed several reforms considering the demand from the BRICS countries.
Pertaining to Quota

• Increasing the quota of emerging economies; India's quota would be increased to 2.7% from 2.4% thus promoting it up 3 places to the 8th position; similarly China's quota would increase from 4% to 6.4%.
• Decreasing the quota of poor nations. This proposal was criticised by the poor countries as the IMF chose to decrease the quota of poor countries rather than the large countries like US and Japan.
• These proposals need 70% votes and without the support of the US, Japan and other large European economies, these reforms cannot be implemented.

Pertaining to Governance

• All executive directors should be elected and there should be no permanent chairs. Current provision allows top 5 quota holders to select 5 out of 24 directors.
• Review composition of executive directors every 8 years.
• These proposals need 85% votes and as mentioned above, US approval is required to put the reforms in place.

All these proposals are pending mainly because of US support. This has prompted the BRICS countries to come up with their own multilateral agencies like the BRICS bank and the AIIB bank as alternatives to the IMF and the World Bank.

Criticism
Many experts are of the opinion that the IMF has failed in predicting several economic breakdowns and crises. Although one of the chief functions is to predict and try to contain these crises, the IMF has failed time and again. Many believe that the Mexico crisis (1995), East Asian Crisis (1997), the sub prime crisis, PIGS crisis, European Sovereign Debt crisis etc could not predicted by the IMF and they could have been avoided by timely intervention. The IMF has also faced criticism for keeping a high SDR rate as well as dragging its feet on reforms in quota and governance.

Reservation and Rise of Mandal Politics

With the 'Mahagatbandhan' RJD-JDU-Congress Alliance sweeping the Bihar elections, there are speculations of the resurgence of the Mandal politics of the 90s. If the NDA sources are to be believed, caste-based politics has made a come back in the Hindi heartland and will upset quite a few political pundits who had written off caste politics after Narendra Modi stormed to power in the Lok Sabha elections of 2014. The 'reservation' debate has assumed national importance once again with the Patel community in Gujarat and the Gujjars of Harayana demanding reservation, while RSS chief Mohan Bhagwat calling for an end to caste-based reservation, the repercussions of which were felt in Bihar.

What the Constitution says
Article 15 of the Constitution says that the State shall not discriminate against any citizen on the grounds only of religion, race, caste, sex or place of birth.
There are three exceptions to this rule:

• State is permitted to make any special provisions for women and children.
• State is permitted to make any special provisions for the advancement of socially and educationally backward classes of citizens or for scheduled castes and scheduled tribes.
• State is empowered to make any special provisions for the advancement of any socially and educationally backward classes of citizens or for scheduled castes and scheduled tribes, regarding their admission to educational institutions, whether aided or unaided by the state, except minority educational institutions. 

The last provision was added by the 93rd Amendment Act of 2005. In order to give effect to this provision, the government enacted the Central Educational Institutions (Reservations in Admission) Act, 2006, providing a quota of 27% for candidates belonging to the OBCs in all central higher educational institutions including the IITs and IIMs.

Article 16 of the Constitution provides for equality of opportunity for all citizens in matters of employment or appointment to any office under the state. No citizen can be discriminated against or be ineligible for any employment or office under state on grounds only of religion, race, caste, sex, descent or place of birth.
There are exceptions to this general rule:

• Parliament can prescribe residence as a condition for certain employment or appointment in a state or union territory or local authority or other authority.
• State can provide for reservation of appointments or posts in favour of any backward class that is not adequately represented in the State services.
• A law can provide that the incumbent of an office related to a religious or denominational institution or a member of its governing body should belong to the particular religion or denomination.

Other articles concerning to the rights and interests of SCs, STs and other weaker sections are Articles 46 and 330 to 342.
It is thus clear that although the Constitution does believe in equality of all citizens, it also asserts that the interests of the backward 'classes' must be given due attention.


Mandal Commission and its aftermath
The Mandal commission, under the chairmanship of B.P. Mandal, was appointed by the Morarji Desai government in 1979 to investigate the conditions of socially and educationally backward classes and suggest measures for their advancement, in terms of article 340 of the Constitution.
The commission submitted its report in 1980 and identified 3743 castes which were socially and educationally backward. These castes constituted nearly 52% of the population excluding SCs and STs. The commission recommended for reservation of 27% government jobs for the Other Backward Classes (OBCs) so that the total reservation amounts to 50%, as 22.5% of the seats were already reserved for the SCs and STs.
After 10 years, in 1990, the V.P.Singh government declared reservation of 27% government jobs for the OBCs. This move resulted in widespread protests all over the country against giving government jobs on the basis of caste rather than merit of the candidate. The protests closed down roads, highways, transportation services, government services, businesses and schools and escalated enough to close parts of the nation. A number of Bandhs, Hartals, Dharnas were organised with simultaneous reportings of looting, rioting and destruction of public property. It ultimately led to the resignation of V.P. Singh as the Prime Minister of India while his party, the Janata Dal was split up into many different parties like Rashtriya Janata Dal (Bihar), Samajwadi Party (UP), Biju Janata Dal (Orissa), Janata Dal Secular (Karnataka) and the Janata Dal United (Bihar).
Several of these parties assumed caste-based identities and projected themselves as representatives of a particular community of the backward class. These communities already felt threatened at that time because of the ongoing protests against reservation. This paved the way for 'votebank' politics, where every party tried to identify itself with one or more community (mainly from the backward classes). This type of politics reaped dividends for several parties in various states, given the political scenario at that time, and was subsequently referred to as 'Mandal politics'.
In 1991, Narasimha Rao government introduced two changes to those made in 1990:

• preference to poorer sections among OBCs in 27% quota, i.e. adoption of economic criteria in granting reservation.
• reservation of another 10% of jobs for poorer (economically backward) sections of higher castes who were not covered by any schemes of reservation.

In the Mandal Case of 1992 (Indra Sawhney vs Union of India), the Supreme Court rejected additional reservation of 10% for poorer section of higher castes, but upheld constitutional validity of 27% reservation for OBCs with certain conditions.

The present reservation system has faced a lot of criticism from various fronts. But the strongest voice of protest comes from the student community which sees the current system of reservation as regressive and counter-productive. Caste-based reservation has caused many meritorious students to miss out on a chance to bag a seat at the premier institutions while simultaneously these institutions have to do with mediocre students, with many even dropping out before the end of the course.
In cases of government jobs and appointments to other state run institutes, a compromise has to be made by employing people who are not worthy or capable but have to be employed to fill up the quota that has been specified. This creates problems in the effective and smooth functioning of the state machinery. Several others have pointed out the fact that the caste-based reservation system has emerged as a political tool rather than a social backwardness alleviation scheme, which has created deep seated resentment among members of various castes which is against the spirit of nationalism.
The makers of the Constitution were of the opinion that as the country would progress in the field of education and science, reservation would be phased out systematically, but the Parliament has always succeeded in extending that period, which raises the question whether our elected representatives themselves want to do away with reservation or not.

India to be a member of the Nuclear Supply Group?

NSG (Nuclear Supply Group) chairperson, Rafael Grossi has said that the NSG will start consultations on India's membership to the elite nuclear group this month. He also ruled out an 'India-specific' rule which leaves room for Pakistan and Israel (both have not signed the NPT like India) to apply. India has sought membership of the NSG since 2008.

The NSG (Nuclear Supply Group) is a 48-member multinational body concerned with reducing nuclear proliferation by controlling the export and re-transfer of materials that may be applicable to nuclear weapon development and by improving safeguards and protection on existing materials. Ironically, NSG was founded in response to India's nuclear tests in 1974 to stop what it called 'misuse' of nuclear material meant for peaceful purposes. Although, India received a special waiver to conduct nuclear trade with all nuclear exporters in 2008, it has not been accepted as a member of the 'club'.

The NSG works by consensus, which means no votes, but all members have to agree to a proposal. Although the NSG has been admitting new members, it has admitted only those countries which are part of the NPT (Non-Proliferation Treaty) and the CTBT (Comprehensive Test Ban Treaty). India has neither signed the NPT or the CTBT. In the past few months President Pranab Mukherjee's visit to Sweden, Prime Minister Modi's visit to Ireland and Foreign Secretary S. Jaishankar's visit to Switzerland saw intense discussions over the NSG question. Support of all these countries, including Norway was critical, as they were previously seen as 'non-proliferation' hardliners, insisting that India sign the Non-Proliferation Treaty before it could be admitted. However, in recent years, their position has softened, as they have been calling for India to align its civil nuclear safeguards with NSG guidelines. Both the US and Russia have pledged support for India's inclusion to the NSG. With Prime Minister Modi looking to conclude the nuclear deal between India and Australia and a possible deal with Japan on the cards when Prime Minister Shinzo Abe visits in December, India seeks to garner enough support to lobby for a position in the NSG. China maybe the only country opposing India's inclusion but it has repeatedly denied these claims, while stating that India should sign the NPT so as to be included in the NSG.

Officials are also hopeful of being considered for the MTCR (Missile Technology Control Regime), the Australian Group and the Wasenaar Arrangement. The MTCR, formed in 1987, is an informal and voluntary partnership of 34 nations to prevent the proliferation of missile and unmanned aerial vehicle technology capable of carrying a 500kg payload for atleast 300 km. The Australia Group and Wasenaar Arrangement are similar groups for control on export of biological/chemical weapons and conventional arms respectively. This will be an important step towards inclusion of India in the global nuclear order.