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WASHINGTON, Feb 24 (Reuters) - International Monetary Fund member countries are expected to take an important step in giving emerging economic powers more say in the global financial institution by approving a new voting formula in April, IMF board officials say.
The proposed formula will be presented to the IMF board of member countries before March 15, before a meeting of global finance chiefs in Washington on April 12-13.
Approval of the formula, which calculates the voting power, or so-called quotas, of each of the IMF's 185 member countries, is a vital step toward changing the actual way in which voting power will be divvied up in a process expected to be wrapped up by the end of the year.
An overhaul of IMF voting power is critical to the relevance of the IMF. But the issue has put countries at political loggerheads because it threatens to erode the dominance of the United States and Europe in the fund.
"There is great confidence that a deal on a new IMF formula will be found at the next IMF Spring meeting," a European official told Reuters.
"The IMF wants to present a proposal that would have the support of most IMF shareholders and that could be close to the final agreement," the official said.
Still, some emerging economies, such as Brazil, have complained the formula does not adequately boost the voting power of all emerging economies.
The change has been forced by the rapid rise of economic powers in Asia and Latin America. It has become more pressing now that China and India are the new global engines of economic growth while the United States and Europe are slowing.
If the IMF is to expand its monitoring of the global economy, emerging economies argue, the distribution of power in the IMF needs to be more balanced.
On condition of anonymity, IMF officials told Reuters there was increasing optimism that differences over power-sharing within the global lender could be resolved by the April meetings, now that a key block of countries had given ground.
Officials said a breakthrough in negotiations came when the IMF's larger shareholders gave a cautious nod to including a measure of purchasing power parity in the new formula, which benefits rapidly growing emerging economies.
For more than a year, IMF member countries have negotiated economic statistics to the most minute detail to formulate a shift in voting power.
According to the proposed formula, seen by some directors, quotas would be calculated according to a formula based on 50 percent of a country's gross domestic product, 30 percent on the basis of its openness to trade, 15 percent of so-called economic variability and 5 percent on the basis of its foreign exchange reserves.
The formula would have the effect of boosting quotas for developing countries because it would introduce a new purchasing power parity measure of GDP, which tends to favor developing countries. It would also take into consideration the degree to which a country permitted market exchange rates to operate.
The PPP component of GDP that will be used in the formula will be from 40 percent to 50 percent, offering an advantage to emerging economies.
Industrial countries have long resisted the use of PPP data partly because of the central role of market exchange rates in the IMF's work.
The proposed formula also triples the so-called basic votes of member countries, which are distributed equally to each member. The move would ensure that the voting power of lesser developed countries did not decline as more power shifted to larger, emerging economies away from developed nations.
New IMF Managing Director Dominique Strauss-Kahn, a former French economy minister, told board directors last week that an agreement was necessary by the IMF meeting of finance chiefs.
"This addresses one of the most urgent priorities in the governance of the IMF in terms of how members feel represented within the institution," said Domenico Lombardi, president of the Oxford Institute for Economic Policy and senior scholar at Washington's Brookings Institution think-tank.
"Whether it will go through or not is the first serious test for the managing director in terms of his ability to generate consensus on a proposal that he will recommend the board approves," he added. "So far he has kept a low profile." (Additional reporting by Francesca Landini; Editing by Dan Grebler)