Europe struggles to meet pledge to cut seats on IMF board

BRUSSELS, Sept 20 Thu Sep 20, 2012 6:39am EDT

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BRUSSELS, Sept 20 (Reuters) - Europe is unlikely to deliver fully on a promise to cut its representation on the IMF's 24-member board by the fund's Tokyo meeting next month, European officials said, which may irk emerging market countries that accuse Europe of foot-dragging.

Cutting the European presence on the board is part of a package of reforms approved in 2010 by the IMF's membership to give emerging market countries greater say in the global lender, where critics say Europe is over-represented with eight seats.

The board oversees the daily operations of the Washington-based organisation and is the body responsible for approving billions of dollars in IMF loans to troubled countries like Greece, Portugal and Ireland.

Changes to the board were forced by the United States in August 2010 as part of broader reforms to boost emerging market influence within the lender, including greater voting power for emerging economies such as China, Brazil and India.

They were meant to be finalised by the Tokyo meeting on Oct 12-14.

Emerging economies have increasingly grown frustrated with their efforts to win a bigger say in the IMF, however, especially as the Obama administration is unlikely to seek the necessary congressional approval of the 2010 IMF reforms before the U.S. presidential election in November.

Europe has reshuffled some seats on the board but needs to do more. Analysts say Washington's reluctance to authorize the reform package by next month has bought Europe more time to make the necessary changes.

"We still hope it will be possible to find a solution to reach the two seats, but Tokyo looks unlikely," one European diplomat involved in the talks said.

"We are moving towards a solution and a miracle could happen, but my impression is that it will not happen in Tokyo."

So far, Belgium and the Netherlands, each with a board representative, would consolidate into one, freeing up a seat.

Switzerland would share its seat with Poland, which counts as an emerging economy, increasing emerging market representation by half a seat.

Expanding the Nordic-Baltic constituency to include Baltic countries - also emerging economies - would further tip the balance in favour of emerging markets, albeit still from Europe.

IN THE SHADOW OF U.S. PRESIDENTIAL ELECTIONS

Germany, France and Britain have their own seats on the IMF board and have no intention of giving them up. Italy and Denmark also have board seats that represent groups of countries.

Europe hopes its possible failure to deliver in full on board seat reduction by October will be less conspicuous if the 2010 reform package has not been ratified by the United States, the IMF's largest member country.

"Entering into force of the 2010 reforms by the annual meeting is expected to fail, given that United States will most likely not be in a position to ratify the reforms before their presidential election," a second official said.

Polling day in the United States is Nov. 6.

"However, the United States could ratify the reforms soon thereafter, which would put Europe in the spotlight and have important consequences for the European standing in the IMF and the G20," the official said.

The first official said a deal on a full two-seat reduction for Europe's advanced economies could come in time for IMF meetings in April.

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