International financial institutions should change they way they work to reflect the needs of emerging economies, according to Raghuram Rajan, Indian central bank governor and former chief economist of the International Monetary Fund.

Speaking on the eve of the annual IMF-World Bank meetings in Lima, Mr Rajan called for industrialised nations to put more capital into organisations such as the World Bank, a “global safety net” backstopped by the IMF to help economies suffering from liquidity crises, and for emerging economies to be included in policy discussions at an earlier stage.

“There is no substitute to reforming the global multilateral institutions and making them work more broadly for the membership,” said Mr Rajan in an interview at the Reserve Bank of India’s headquarters in Mumbai.

The World Bank and IMF chiefs are traditionally appointed from the US and Europe respectively, while the head of the Asian Development Bank is appointed by Japan, reflecting the dominance of industrialised countries in the funding and voting rights of the institutions.

Frustration with this dominance among developing nations has galvanised support for the new China-led Asian Infrastructure Investment Bank, a rival to the World Bank and the ADB. At the same time, there have been calls for the IMF to be led by someone from the developing world, and Mr Rajan is seen as a likely future candidate.

“Legitimacy is important,” Mr Rajan said. “Legitimacy is not just about quota, not just about who appoints the boss of the organisation, it’s about sharing agendas, it’s about transparency on the issues that come to the table, about giving everybody a chance to place those issues.”

He gave the example of financial regulations with global reach that would typically be discussed among representatives of advanced economies behind closed doors and only presented at a late stage to those of emerging markets. “Eventually what emerges is a compromise amongst the advanced countries, even though we’ve been at the table when the final vote is there,” he said.

Mr Rajan added his voice to the calls for an increase in the $253bn capital of the International Bank for Reconstruction and Development, the main arm of the World Bank, and other such groups to fund the burgeoning infrastructure needs of emerging economies such as India.

“But because there are financial difficulties in the industrial countries they’ve been reluctant to see the resources of these entities expand and have emphasised far more the need for institutional reform, etc,” he said. “Yes, that has a place but it can’t be the only thing.”

Mr Rajan also called for a “global safety net” backed by the IMF to provide support to economies that might experience liquidity crises in the future, especially given that such problems might be triggered by the reversal of years of highly accommodative, post-crisis monetary policy in advanced economies such as the US.

Without such a safety net, governments were reluctant to approach the IMF because of the stigma attached to such a plea and the implication that they were undergoing a full-blown solvency crisis rather than a temporary shortage of liquidity as billions of dollars of capital rushed for the exit.

Mr Rajan said one possibility was a multilateral swap arrangement among central banks — of the sort that already exists between the emerging Brics economies and in the $50bn Japanese credit line for India, for example — guaranteed by the IMF. “I think a lot of emerging markets would like to see something like this,” he said, but admitted there was no appetite for the idea among advanced economies.

Mr Rajan’s task of representing the developing world is made easier by the fact that the Indian economy is among the least affected by the Chinese and global economic slowdowns. India is growing at more than 7 per cent a year, the fastest among large emerging markets, and has benefited from the collapse in the price of its oil imports.

He warned nevertheless that India was now more trade-dependent than people realised and could not escape the effects of troubles elsewhere.

The world economy, he said, was “looking grim”, with weakness in industrialised countries putting paid to the export-led growth models of emerging markets. “Growth is clearly weaker than we would like in India, partly because global growth is weaker . . . We’re pretty much an open economy.”