The International Monetary Fund’s executive board approved a plan that would make China the third- strongest voice in the organization while weakening Europe’s influence to make room for emerging economies.
Acting on an Oct. 23 deal by finance chiefs of the Group of 20 nations, the IMF agreed to shift more than 6 percent of voting rights to what officials called “dynamic” developing countries. That would give more say to nations such as Brazil and South Korea, while decreasing the clout of European members including Belgium and Germany. “Advanced” European countries are also set to give up two seats on the board under the package.
“We catch up with the reality,” IMF Managing Director Dominique Strauss-Kahn told reporters at a news briefing in Washington today, calling the agreement historical. “The ranking of the countries is really the ranking they have in the global economy.”
The plan now requires the approval of an 85 percent majority of the 187 members’ votes and most countries will then need to go through a legislative process to enable the changes.
The aim is to make the 65-year-old institution a better reflection of a world economy that was pulled out of the recession and is still being driven by growth in emerging markets. The planned changes come at a time when the IMF has been asked to help the G-20 monitor global trade imbalances and exchange rates amid tensions between its members over whose policies are most hurtful to a balanced global recovery.
Officials including U.S. Treasury Secretary Timothy F. Geithner and Strauss-Kahn have tried to link access to bigger clout at the IMF to increased “responsibilities” in the global economy, a hint at China to accelerate its currency’s appreciation. China has said it’s done enough to deserve more say.
While the governance package is “a big moment” in the history of the fund, it’s unlikely to prompt China, which moved from the sixth rank, to adopt a different stance on the yuan, said Bessma Momani, a professor at the University of Waterloo’s political science department in Canada.
“For people to expect the Chinese to somehow switch gears and become very vocal at the IMF because of its increase in political weight there is very premature,” she said.
After the changes take effect, the fund’s 10 biggest shareholders will comprise the U.S., Japan, Germany, the U.K, France and Italy as well as Brazil, Russia, India and China. A smaller shift in voting rights of 2008 has still not been implemented.
Months of Negotiations
The agreement ends months of negotiations that saw the U.S., Europe and some emerging nations at loggerheads over who should give up power. It also closes a debate unexpectedly forced by the U.S. in August of which countries should sit on the institution’s board of directors, which will now permanently have 24 chairs.
The developed European nations’ plan on how to give up two seats is not yet agreed on, though it will probably be based on having some European countries take turns at the board with emerging economies, according to two European officials who spoke on conditions of anonymity. Turkey and Poland may benefit from the changes, the officials said.
The shift in voting shares will take place through a general increase of quotas, which also determine members’ financial commitment to the fund and access to loans. That means the IMF’s permanent resources will be doubled to about $750 billion, mostly by shifting countries’ contribution from an emergency pool, according to the G-20.
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