Finance chiefs inch toward IMF vote agreement
(Recasts to add details from communique, quotes)
By Lesley Wroughton
WASHINGTON, Oct 20 (Reuters) - Global finance chiefs on Saturday made progress on reforms that would give emerging economies a greater say in the International Monetary Fund and expressed confidence they could seal a deal next year.
Under a plan backed by the IMF's policy committee, fast-growing emerging market nations would get more voting power in the global lender, which has long been dominated by rich developed countries.
The head of the panel, Italian Economy Minister Tommaso Padoa-Schioppa, said it was "now very likely" an interim agreement on a formula to govern IMF voting shares would be reached by April, with a final deal nailed down by the fund's annual meeting next fall.
Last fall, the IMF's 184 member countries endorsed a plan that increased the voting power of emerging economies China, Mexico, Turkey and South Korea, and agreed that a second round of adjustments should be completed by 2008, based on a new voting formula.
After a day-long meeting, the IMF's policy panel proposed an increase of member countries' votes "in the order of 10 percent" and a doubling of so-called basic votes, which are distributed equally to each member.
The increase in basic votes would ensure the voting power of lesser-developed countries did not decline as more power shifted to larger, emerging economies away from developed countries.
"An outcome of the second round of reforms should be a further increase in the voting share of emerging market and developing economies as a whole," the IMF committee said.
The panel said a formula for calculating the increases should be based on both the size of a country's economy and its purchasing power, one of the demands of developing countries.
The signs of movement on an issue that has put IMF member countries at loggerheads comes as a new leader, former French Finance Minister Dominique Strauss-Kahn, gets ready to take over the Washington-based lender at month's end.
POLITICAL BATTLES
The issue of how to increase the votes of emerging economies, which all parties agree are under-represented at the fund, is intensely political. Some old powers, like Britain and France, could see China move past them in voting status, depending on what type of formula is agreed in the end.
Developing countries have been pressing for years to change the IMF's voting formula, which they say undermines the fund's legitimacy by placing so much power in the hands of the United States and countries in Europe.
Some countries have called on the 27-member European Union, which holds eight of the 24 seats on the IMF's executive board, to consolidate its power into a single chair.
Padoa-Schioppa said he agreed that Europe should occupy one seat to make way for emerging economies. "IMF includes the word 'monetary'. The EU has one money. It should consolidate," he told a news conference, referring to the euro currency.
Brazil warned bluntly that emerging countries were likely to abandon the fund unless they were given a greater stake in its decision-making process.
"Developing countries, or many among them, would go their own way, were the perception to arise that reform will not happen or that we will be left with a purely cosmetic form," Brazilian Finance Minister Guido Mantega said.
Emerging economies insist any overhaul in votes must transfer significant additional power to them, and not just give them a pat on the head. "Any modest result, which simply tinkers at the margins, would call into question the relevancy and legitimacy of the fund," Mantega argued.
PUTTING PROSPERITY AT RISK
The IMF committee declared the global economy sound, but recognized growth was taking a hit in the United States and Europe as credit conditions tighten in reaction to rising defaults in the U.S. subprime mortgage market.
By contrast, developing countries have been emboldened by the fact that their economies are thriving, and they have used the opportunity to flex their economic muscle.
"The irony of this situation: countries that were references of good governance, of standards and codes for the financial system, these are the very countries that are facing serious problems of financial fragility putting at risk the prosperity of the world economy," Mantega added. (Additional reporting by Glenn Somerville, Gernot Heller, Steven C. Johnson, Emily Kaiser, Louise Egan and David Lawder)
By Lesley Wroughton
WASHINGTON, Oct 20 (Reuters) - Global finance chiefs on Saturday made progress on reforms that would give emerging economies a greater say in the International Monetary Fund and expressed confidence they could seal a deal next year.
Under a plan backed by the IMF's policy committee, fast-growing emerging market nations would get more voting power in the global lender, which has long been dominated by rich developed countries.
The head of the panel, Italian Economy Minister Tommaso Padoa-Schioppa, said it was "now very likely" an interim agreement on a formula to govern IMF voting shares would be reached by April, with a final deal nailed down by the fund's annual meeting next fall.
Last fall, the IMF's 184 member countries endorsed a plan that increased the voting power of emerging economies China, Mexico, Turkey and South Korea, and agreed that a second round of adjustments should be completed by 2008, based on a new voting formula.
After a day-long meeting, the IMF's policy panel proposed an increase of member countries' votes "in the order of 10 percent" and a doubling of so-called basic votes, which are distributed equally to each member.
The increase in basic votes would ensure the voting power of lesser-developed countries did not decline as more power shifted to larger, emerging economies away from developed countries.
"An outcome of the second round of reforms should be a further increase in the voting share of emerging market and developing economies as a whole," the IMF committee said.
The panel said a formula for calculating the increases should be based on both the size of a country's economy and its purchasing power, one of the demands of developing countries.
The signs of movement on an issue that has put IMF member countries at loggerheads comes as a new leader, former French Finance Minister Dominique Strauss-Kahn, gets ready to take over the Washington-based lender at month's end.
POLITICAL BATTLES
The issue of how to increase the votes of emerging economies, which all parties agree are under-represented at the fund, is intensely political. Some old powers, like Britain and France, could see China move past them in voting status, depending on what type of formula is agreed in the end.
Developing countries have been pressing for years to change the IMF's voting formula, which they say undermines the fund's legitimacy by placing so much power in the hands of the United States and countries in Europe.
Some countries have called on the 27-member European Union, which holds eight of the 24 seats on the IMF's executive board, to consolidate its power into a single chair.
Padoa-Schioppa said he agreed that Europe should occupy one seat to make way for emerging economies. "IMF includes the word 'monetary'. The EU has one money. It should consolidate," he told a news conference, referring to the euro currency.
Brazil warned bluntly that emerging countries were likely to abandon the fund unless they were given a greater stake in its decision-making process.
"Developing countries, or many among them, would go their own way, were the perception to arise that reform will not happen or that we will be left with a purely cosmetic form," Brazilian Finance Minister Guido Mantega said.
Emerging economies insist any overhaul in votes must transfer significant additional power to them, and not just give them a pat on the head. "Any modest result, which simply tinkers at the margins, would call into question the relevancy and legitimacy of the fund," Mantega argued.
PUTTING PROSPERITY AT RISK
The IMF committee declared the global economy sound, but recognized growth was taking a hit in the United States and Europe as credit conditions tighten in reaction to rising defaults in the U.S. subprime mortgage market.
By contrast, developing countries have been emboldened by the fact that their economies are thriving, and they have used the opportunity to flex their economic muscle.
"The irony of this situation: countries that were references of good governance, of standards and codes for the financial system, these are the very countries that are facing serious problems of financial fragility putting at risk the prosperity of the world economy," Mantega added. (Additional reporting by Glenn Somerville, Gernot Heller, Steven C. Johnson, Emily Kaiser, Louise Egan and David Lawder)
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