Abstract

How robust has the ratio of international reserves to short-term external debt been as an early warning indicator of external vulnerability and currency crisis? We examine this issue and, in particular, analyse the significance of the reserve ratio's predictive power and its sensitivity to the database used by estimating regression coefficients for a number of explanatory variables using Probit and Logit methods. The data cover 15 episodes of crisis during 1985 to 2001 in nine emerging-market countries from Latin America and Asia. Our econometric results firmly support the notion that the reserve ratio is a strong indicator of currency crisis and external vulnerability, but its relative significance varies with the source of the data on short-term debt. We also estimate the vulnerability threshold value of the reserve ratio and draw a highly unconventional conclusion: The minimum threshold value of approximately 1 is a reasonable guide to an emerging-market country's reserves policy; higher levels of reserve ratio, while costly to maintain, do not make a country less vulnerable to external crises. Finally, we examine the predictive power of the reserve ratio by using alternative measures of international reserves and short-term debt in the case of 1994 Mexican crisis. Two key findings emerge. First, some of the methodological adjustments recommended by the IMF for calculating the reserve ratio are indeed highly significant. Second, the market amortization component of short-term debt (amortizations of external debt held by private foreign investors scheduled over the next 12 months) is a much more powerful indicator of potential liquidity problem that total short-term external debt (total amortizations over the next 12 months).

Abstract

The global international financial institutions (IFIs) increasingly justify their operations in terms of the provision of international public goods (IPGs). This is partly because the rich countries of the North appear to support expenditures on these IPGs, in contrast to the ‘aid fatigue’ that afflicts the channeling of country-specific assistance. But do the IFIs necessarily have to be involved in the provision of IPGs? If they do, what are the terms and conditions of that engagement? How does current practice compare to the ideal? And what reforms are needed to move us closer to the ideal? These are the questions I ask in the framework of the theory of international public goods, and in light of the practice of international financial institutions, the World Bank in particular. For the World Bank, I draw a series of specific operational and resource reallocation implications.

Introduction

When people talk of the international financial institutions (IFIs), they usually mean the two Bretton Woods institutions, the International Monetary Fund and the World Bank. Of course, strictly speaking, any multilateral organization with financial operations is an IFI – for example, the regional multilateral banks, regional monetary authorities or some agencies of the UN that disburse funding. However, in practice, the term IFIs is understood to mean the two global IFIs – the Fund and the Bank. In recent years there has been growing discussion of the role of these institutions in the provision of international public goods (IPGs).

The reorganized Congress that emerged in Bengal in the 1920s adopted diverse methods of mobilization to build up its support base during the non-cooperation Khilafat movement. This chapter examines the nature of Congress interaction with popular politics between 1920 and 1922 when nationalist fervour acquired a great momentum.

The remodelled Congress, which developed strong village links in the wake of non-cooperation agitation, was sustained by ideological and political propaganda. While this initiative went a long way towards guiding the disparate economic grievances and a general anti-British feeling into a non-violent anti-imperialist struggle, equally important was the spontaneous self-mobilization of the masses and their conscious acceptance of the nationalist message of their leaders. The relationship between nationalist propaganda from above and the self-initiative of the people is therefore an interesting area of study.

The Congress leadership adopted various methods to mobilize different social groups and draw them into the non-cooperation movement. In the city of Calcutta, as well as in the countryside, mass meetings emerged as rallying points for a wide cross-section of people. The preliminary agitation among the Muslim masses was conducted by up-country Mohammedan leaders Sahukat Ali, Dr Kitchlew and Rafi-Ud-din Ahmed Qidwai who toured the province and held meetings at the mufassil centres to propagate anti-Turkish Peace Treaty campaigns. During this period several meetings were held to impart the message of boycott and Jehad against the foreigners even in such remote areas as Gunbati in the district of Tippera.

Rules of the Bengal Provincial Congress Committee

(Adopted at meetings of the Committee held on 12 February 1921, 15 February 1921 and 16 February 1921.)

1. The Bengal Provincial Congress Committee shall represent the Indian National Congress in the Province of Bengal and Surma Valley and shall act as for the Province in all Congress matters and take such steps as it may think proper to organize provincial, district and local Conferences and make rules for the conduct of their business and otherwise carry on the work of the Congress.

2. The Bengal Provincial Congress Committee shall be composed of members elected in manner hereinafter laid down.

3. The Bengal Provincial Congress Committee shall organize a District Congress Committee in each District (in accordance with the new Constitution of the Congress), which shall carry out the work of the Congress in the districts under its guidance and control. Such Committees shall abide by all the Rules framed and instructions issued by the Bengal Provincial Congress Committee.

Note: The city of Calcutta including the area within its Municipal Jurisdiction, shall for the purpose of these rules be treated as a District.

4. The District Congress Committees shall organize and establish local Congress Committees in such urban and rural areas as they consider necessary and such local committees shall abide by the rules and act under the guidance of the District Congress Committees subject to the control of the Provincial Congress Committees.

It is generally believed that ‘associations brought nineteenth century India across the threshold of modern politics’. The foundation of the Indian National Congress in 1885 was a landmark in the history of associations. Since then the complexities of modern politics have shaped its creed, character and composition both at central and local level.

Until the First World War the nationalist Congress confronted imperialism using techniques ranging from the policy of petitioning favoured by the Moderates to the passive resistance of the Extremists. By the end of the war however, nationalist politics began to reach sections of the populace who had earlier remained outside it. Their potential as active participants in modern politics could not be ignored. A point had been reached where institutional politics could not remain oblivious of the politics of the people. This set the trend for nationalist politics in future years as the two streams interacted, each moulding the other.

This work attempts to identify the links between institutional politics and the politics of the people, exploring its impact on both groups and also on the course of the nationalist movement, especially during the period of Gandhian nationalism. Rather than concentrate on the history of a locality at a specific time when the nationalist struggle was at its height, this study has tried to establish a link between micro and macro studies over a period of 20 years in order to broaden the perspective of nationalist politics.

The end of the civil disobedience movement once again witnessed a division in the Congress leadership in Bengal. One section within the party preferred to return to constructive social work to keep up mass contact. Others opted to contest elections for local boards and legislatures. The latter felt that ‘the members may not in principle recognize council entry as one of the means to fight the bureaucracy but it may reserve clear enunciation of its attitude towards the coming Reforms for future consideration.’ At the AICC meeting in May 1934 a new parliamentary board was formed to control electoral affairs. In Bengal, while Dr Bidhan Chandra Roy was in favour of the parliamentary programme, most Congressmen were opposed to council entry.

The Government Of India Act 1935 introduced provincial autonomy, which was to come into full force from 1 April 1937. Qualifications for inclusion in the electoral roll for the 1937 election was made dependent on taxation, property and education. However, the Act granted separate electorate to the Muslims. This meant that they would vote as a distinct political community and they were allotted 119 out of the 250 seats.

The act was expected to enfranchise 16,600,000 voters. While Congress expected to win seats in the general constituencies, it did not anticipate an uncontested victory. There were strong indications of a decline in the popularity of Congress because of general disillusionment at the failure of civil disobedience movement.

In many ways the First World War was a harbinger of change in Indian politics. Economic dislocation, inflated prices and government control on trade increased the hardships of the people, making them increasingly conscious of the oppressive nature of the rule of their imperial government. In Bengal the intellectual element pondered over the cause-and-effect relationship between the political situation and the economic condition.

The Bengali popular press was particularly vocal against colonial indifference to the economic plight of the people. The Viswamitra thought that ‘subjugation was the real cause of famine because the commercial policy of the government enabled the foreigners to exploit the land’. The Hitabadi too was of the opinion that the establishment of mills and factories had not benefited India and the artisan class was growing poorer. Dainik Bharatmitra argued that prospect of British capitalists opening more factories would mean further systematic exploitation. Samyavadi felt that to eliminate India's poverty it was necessary to ensure not only that the raw materials for manufacture came from India, but also that the manufacturers should themselves be Indians. British policy was held responsible for encouraging foreign exploiters and the Marwaris. The Bengali pointed out that the monopoly enjoyed by the Railways and the Steamer Company was the cause of high prices. The most insistent cry was against the export of rice. When the restrictions against interprovincial movements of rice crops were removed, it created a great stir.

Until 1919, the Congress as an organization did not have much connection with the grass roots. However, following the First World War, two broad factors contributed to the change in its structure. The Act of 1919 widened the franchise, which made Congress eager to extend its organizational network to provincial and district levels. This period also saw a considerable section of the Indian people being drawn into nationalist politics. The Congress could not ignore these changes. Therefore, when faced with the problem of adopting a new scheme of agitation in 1920, the Congress had to reform its constitution to gain a broad-based and permanent character.

On the final day of the Congress session at Nagpur in December 1920, delegates approved a new constitution for the Congress committee. The British Committee of Congress was dissolved along with its paper India. This marked the end of the politics of petitions. Henceforth, Congress leaders were to concentrate more on their own actions within India than on playing to the British gallery.

The new Congress constitution proposed the establishment of a working committee of 15 members, which was to function as a permanent Congress executive. From a loose federation of 200 members, the Congress became a more active and permanent organization. Congress circles were reorganized on a linguistic basis so as to extend the roots of its organization to the subdivision and taluka level.

The Chauri Chaura incident followed by the Bardoli Resolution brought the non-cooperation movement to a sudden halt. Its participants were left without any clearly defined and intelligible objective and the result was confusion. But once the initial despair was overcome, the non-cooperators began to reconstruct a programme on lines that would appeal to the popular imagination.

In Bengal, the Bardoli Resolution slowed down the pace of preparation for civil disobedience. In some places like Noakhali, Birbhum and parts of Rajshahi the activities of volunteers picketing excise shops did not stop stop immediately, but at Rangpur, in Gaibandha and Kurigram, the volunteers began to follow the Bardoli Resolution programme and engaged themselves in social reconstruction. In most of the districts, constructive social work, such as popularizing the use of charka among the poorer people, continued unhampered. Organizational reconstruction, like enlistment of Congress members by district Congress committees, also continued as usual. Official records show that ‘almost everywhere, the political atmosphere remained calm, marked by a general disappointment among the people’.

Earlier in 1922, Chitta Ranjan Das and his lieutenants were arrested in connection with the boycott of the visit of the Prince of Wales in December 1921 and the BPCC was dominated by Shyam Sundar Chakrabarti and his followers. Later in the Chittagong conference of 1922 C R Das introduced the concept of obstruction and non-cooperation from within the council.

The resolution of Purna Swaraj adopted by the All-India Congress in Lahore resuscitated nationalist spirit, despite the hardships caused by the international economic crisis of 1930. According to official reports the resolution of independence and the decision to celebrate Independence Day on 26 January initially aroused little enthusiasm in Bengal. The major reason, as cited by the magistrate of Rangpur was ‘rivalry of leadership and split in the Congress itself’.

Yet as Gandhi launched his Dandi March and placed before the public a positive programme, the salt satyagraha, enthusiasm for civil disobedience developed rapidly in Bengal. An All-Bengal Council of Civil Disobedience was formed and it was decided to violate the salt law in the coastal districts of Chattogram, Noakhali, Barisal, Khulna, 24 Parganas and Midnapur. Every district was to form a civil disobedience committee comprised of the important personalities of the district suder and mahakuma and also make provisions for raising funds. The civil disobedience movement, with its clear anti-imperialist agenda, once again helped to crystallize efforts towards linking elite politics and the relatively spontaneous politics of the people into an organized movement.

The civil disobedience movement in Bengal was organized by special Congress district civil disobedience committees which were affiliated to the local Congress committees. Satyagraha camps were organized to train volunteers who would spread the message of civil disobedience to the far corners of the province and carry on the movement.

This study has thus gone beyond the two received paradigms: (a) that organized politics of the Congress retained its elitist character throughout the period of nationalist struggle and (b) the idea that the politics of the people ran parallel to and was relatively autonomous of institutional politics. Both of these stereotypes have ignored the areas of interaction and interdependence of the two realms of political activities, especially during the phase of Gandhian nationalism. This work demonstrates that from 1919 the Congress tried to maintain its link with the people, which to a large extent contributed to an interaction between organized and unorganized politics. Gandhi's strategy of satyagraha and non-cooperation on specific issues sustained this process. However, Gandhi laid down specific conditions and boundaries within which the people were expected to act. Popular upsurges were withdrawn whenever they reached a certain momentum and began to cross this Gandhian barrier. In analysing the nature of this interaction, this book has concentrated primarily on the non-cooperation and civil disobedience movements and the periods immediately thereafter.

During the days of the non-cooperation movement, the institutional programme of the Congress was one of boycott and non-cooperation with the British educational, judicial and administrative systems. It also involved economic boycott of British commodities. To involve the masses in a year-long movement, it was necessary to resuscitate the Congress organization in Bengal and create a network through which it could reach the grass roots. The Congress organization was extended down to the village level so that the local people could be mobilized by Congress propaganda.

The lengthy, cramped voyage was succeeded, for new immigrants, by the procedures of disembarkation and allocation to employers. In some cases indentured labourers were engaged to a specific plantation in India and would be sent directly, usually on foot or in carts, to the estate-owner who had requisitioned them. In other cases, new arrivals would be placed in an immigration depot, to be viewed and engaged by local planters. Women who arrived without a male partner were often also ‘looked over’ by prospective spouses. The new arrivals would be taken before a magistrate to sign indenture contracts, which varied in length between one and five years. As the nineteenth century progressed, the five-year indenture became the norm.