* IMF vote deal possible after US drops trade push
* U.S. sought to link deal to agreement on trade targets
* IMF quota shift to developing countries just 2.8 pct
By Lesley Wroughton
WASHINGTON, Oct 27 (Reuters) - A last-minute deal among G20 nations to give emerging economies more voting power at the IMF was made possible when the United States abandoned efforts to link the shift to trade balance targets, sources said on Wednesday.
U.S. Treasury Secretary Timothy Geithner introduced the idea of tying actions to bring about a better-balanced global economy to more International Monetary Fund voting power during meetings of the Fund in Washington last month.
Geithner fleshed out his proposal in a letter to finance ministers of the Group of 20 nations in which he pressed for a deal to limit current account surpluses and deficits to a specified share of national output.
The idea of linking a voting power deal to an agreement on trade caught emerging markets, which have long pushed for more say in the IMF, off guard and was widely rejected. Exporters that run large trade surpluses, like China, Russia, Germany and Saudi Arabia, were particularly vehement in their opposition.
The sources — officials from emerging economies who took part in the discussions — said the United States backed off the idea as G20 finance ministers met behind closed doors in Gyeongju, South Korea on Saturday, enabling an IMF shift-of-power proposal to move forward.
“No deal would have been possible if the Americans had kept on insisting on that link. It would have complicated things enormously,” one source from a major emerging country told Reuters.
“The attempt to link it to reforms was half-hearted because it was very difficult to manage and they couldn’t bring in a whole new condition for the completion of the deal at the last minute,” the source said. “It doesn’t mean they’re not going to pursue it” when G20 leaders meet in Seoul on Nov. 11-12.
The sources said IMF Managing Director Dominique Strauss-Kahn and G20 host South Korea were instrumental in brokering the IMF reform deal, first bringing together the United States and European countries to reach an agreement on the make-up of the IMF board, which is dominated by Europe.
In the meeting, Europe agreed to give up two seats on the 24-member panel. It has two years to decide which countries will cede their chairs.
Later, the thornier issue of redistributing voting power was tackled in a meeting between major emerging economies Brazil, Russia, Indian and China — the so-called BRICs — and the Group of Seven old-line powers — Britain, the United States, Canada, Japan, Italy, Germany and France.
In a surprise deal, the countries committed to a 6 percent shift in IMF voting power from developed countries to “dynamic” under-represented emerging market economies, a reference to the BRIC nations.
But the size of the overall shift from developed to developing countries was just 2.78 percent. That remained a point of contention as many developing countries, including G20 members South Africa and Argentina, would not benefit.
With the small shift in power from developed to developing countries, the legitimacy of the IMF would still be in question, the sources said.
BRIC countries accepted the deal only after the United States and other G7 powers agreed to timelines for the current agreement and future adjustments, including the formula which determines voting power, the sources said.
The deal vaulted China over established European powers Germany, France and Britain into third place on the list of IMF voting powers, and guaranteed Russia, India and Brazil a place in the top 10.
“In the end we decided it was a step we would take now and and use forward-looking elements to achieve the necessary shifts,” one of the sources said.
Editing by Tim Ahmann and Andrew Hay