, is the objective that quota shares of low - income countries are protected to the fullest extent possible. we find that these twin outcomes can only be met if, in the hypothetical new formula, gdp is computed entirely on purchasing power parity ( ppp ) basis. no halfway house of blending gdp at market exchange rates with gdp on ppp would meet these twin objectives. furthermore, the “ openness ” variable in the calculation of quotas needs a close scrutiny in the context of countries having a common currency. we are of the view that our proposal for comprehensive reforms alone will result in adequate, equitable and appropriate representation for developing countries. such a broader representation of the developing countries would enhance the acceptability, ownership and effectiveness of the fund ’ s programmes and policies. this twin outcome approach requires a sense of pragmatism and spirit of compromise on the part of all member countries. however, we are dismayed that, contrary to this approach, some proposals are being made that detract from the spirit and purpose of the reform process. it is being proposed that the reform objectives could be met in a number of ways. in our view, the promise of a number of ways is a teasing illusion. there is only one way and that is to construct a formula that realigns actual quotas in line with current global economic realities. another suggestion has been to benchmark the revision to the current calculated quotas rather than the actual quotas. what the outside world and we understand by imf reforms is an outcome that seeks to realign actual quotas in line with current global economic realities. we need to resist all attempts to obfuscate this intent. emerging market economies and crisis prevention the resilience of emerging market economies has increased with sustained reforms and strong policy frameworks. most of the emerging market economies have built self - insurance and enjoy greater market confidence. at the same time, these economies face several policy challenges from time to time, emanating from exogenous changes in global capital flows. the fund, therefore, needs to reorient its interface with these countries to suit their specific requirements and strengthen its toolkit to address typical financing needs of emerging markets. in this context, i note the ongoing discussions on the design of a new liquidity instrument. we see merit in a new liquidity instrument of a contingent nature that could strengthen the fund ’ s crisis prevention efforts. it is important that the new instrument is created after careful analysis of the proposed qualification

larger sterilised operations. thus, the authorities in their countries are facing challenges that are arising from large cross border flows and financial market volatility that is related to possible inappropriate risk pricing by international investors. in sum, while i see good prospects for the global economy, there are a number of risks emanating from the behaviour of oil prices, adverse developments in the us housing market, persistence of global imbalances, large leveraged positions in financial markets, and possible emergence of inflationary pressures. in addition, there is also the threat of protectionist pressures with adverse consequences on global growth. the evolving situation needs to be carefully watched and policy makers should be ready to respond to emerging challenges promptly and effectively. reshaping of surveillance surveillance is the key responsibility of the fund. we have noted the ongoing work in this important area. we would be supportive of efforts that would enhance the relevance of surveillance and increase its effectiveness. the basic approach and principles for moving ahead have been laid down by the managing director clearly and succinctly : ( i ) the revised decision should muster the broadest possible support ; ( ii ) it should not in any manner, overt or covert, introduce new obligations ; and ( iii ) it should not move towards a more compliance - based approach. i am confident that, if we approach the issue with these principles in mind, it would assuage many apprehensions of members. in the context of the review of the 1977 decision, my understanding is that the decision derives its legal basis from article iv section 3 ( b ) on surveillance over members ’ exchange arrangements. the adoption of new principles that are being currently debated must be limited to the subject matter of surveillance over exchange rates. we would be uneasy to see the insertion of any new principles that qualify domestic policies with peripheral consequences on exchange rate management. while it is open to the fund to suggest “ factors ” or “ points for consideration ” relating to what constitutes sound monetary, fiscal or financial sector policies, it must be clearly understood that such guidelines qualify the fund ’ s oversight over members ’ domestic policies under article iv section 3 ( a ). they cannot and should not be regarded as principles qualifying firm surveillance over exchange rates under article iv section 3 ( b ). as regards exchange rate surveillance, the proposed draft new principles seem to go beyond the intent of article iv in so far as formally taking on board the concept of " fundamental exchange rate misalignment ". in view of conceptual and method