imf jurisdiction over capital account policies of member countries or to impose an obligation on members on this count. the imf ’ s resources 8. we welcome the ratification of the april 2008 quota reforms. the next step in this process should be the speedy ratification and implementation of the 2010 quota and governance reforms. a comprehensive review of the quota formula should be completed by january 2013 to set the stage for the 15th general review of quotas by january 2014 which will carry forward the modest progress made so far in enhancing the representation of dynamic emerging and developing countries in the imf to meaningfully reflect the changing global economic realities. we must make our best efforts to complete the 2010 reform before the 2012 annual meetings. 9. we welcome the expanded and amended new arrangements to borrow ( nab ) which became effective from march 11, 2011. the activation of the nab should be regarded as a bridge between current expectations and the availability of higher quota resources under the 14th general review. subsequently, nab should be scaled down so as to preserve the quota - based character of the imf as an institution that is accountable to its membership. reserve adequacy 10. in our view, the insurance that reserves provide against sudden stops in growth due to capital drying up far outweigh the opportunity costs. reserve accumulation by countries is an important part of the global safety net, particularly when the reserve accumulation takes place in the context of current account deficits. bis central bankers ’ speeches 11. any assessment of reserve adequacy needs to be informed by underlying countryspecific conditions, rigorous analytical and empirical foundations and judgments based on practical experience. there should be due consideration to macroeconomic and prudential frameworks and policies, as well as alternative forms of contingent financing, country insurance, and overall assets and liabilities that may not be easily captured in any formula for reserve adequacy. for emerging economies facing volatile surges of capital flows, consideration needs to go even beyond to a broad range of scenarios relating to potential drains on reserves, including a sudden stop of new financing, withdrawal of foreign portfolio investments, capital flight, and current account vulnerabilities. further, the question of reserve adequacy cannot be resolved without addressing the broader issue of scarcity of safe reserve assets. currency internationalization and the role of the sdr 12. in principle, it is desirable to develop a multi - currency system with several currencies operating as broad substitutes and reflecting changing economic weights and global

and to strengthen multilateral adjustment mechanisms to deal with imbalances and sources of instability. imf surveillance 5. the surveillance function is critical to the imf ’ s overall mandate. by focusing on vulnerabilities and detecting the onset of crises, it assumes a vital, preemptive role in preserving global and national stability. effective implementation at both multilateral and bilateral levels is the key to providing surveillance with incisiveness and traction. we believe bis central bankers ’ speeches that this can be achieved within the ambit of the existing provisions of the articles of agreement. if, however, there is a consensus that there are gaps in the legal mandate that hinder effective implementation, an amendment to the articles is the optimal approach. ensuring consistency and comprehensiveness across the various levels of surveillance is important, as is the candour and evenhandedness of the imf – that systemic risks are pointed out irrespective of where they may originate. we need to stress that multilateral surveillance by the imf should not lose sight of sovereign debt concerns of developed countries by adopting tighter screening criteria for developing countries that have actually seen fiscal improvement relative to the advanced economies. managing capital flows 6. as the recovery of emerging and developing countries has gained momentum, capital flows have surged back to near pre - crisis levels. these flows have exhibited considerable volatility, imparting macroeconomic instability in the event of sudden stops and reversals, eroding competitiveness and complicating the setting of macroeconomic policies. policy prescriptions with respect to capital flows should be even - handed. so far as lumpy and volatile flows are a spillover from policy choices of advanced economies, managing capital flows should not be treated as an exclusive problem of emerging market economies and the burden of adjustment should be shared. how this burden will be shared raises both intellectual and practical challenges. 7. as regards multilateral strategies to managing capital flows, it is difficult to follow an approach that seeks to establish, standardize, prioritize or restrict the range of policy responses of the member countries that are facing large surges in volatile capital inflows. based on their experience, policymakers must have flexibility and discretion to adopt policies that they consider appropriate to mitigate risks through macroeconomic, prudential and capital account management policies without a sense of stigma attached to particular instruments. given the state of knowledge on these issues, it will be premature to consider amending the articles to either give the