August 5, 2009 / 4:36 AM / 10 years ago

Emerging nations stand firm on IMF vote reform

WASHINGTON, Aug 5 (Reuters) - Emerging economies have dug in their heels over power sharing in the International Monetary Fund, insisting realigning voting shares must come before any other governance reforms are tackled.

Newly assertive emerging powers want voting shares to reflect their rising might in the global economy and flatly rejected a proposal strongly backed by IMF Managing Director Dominique Strauss-Kahn for a decision-making ministerial council they fear might delay basic reforms they want.

Copies of statements obtained by Reuters of initial discussions on IMF quota reform last week reflect the frustration of the developing countries over the long-standing dominance of the United States and Europe in Fund decisions.

A joint statement by a large group of developing countries, including big emerging economies China, India, Russia and Brazil, said unfair distribution of members’ quotas that favors developed nations severely undermined the IMF’s legitimacy.

“We are of the view that the most urgent issue in the reform of IMF governance is a substantial quota realignment in favor of middle-income countries and low-income countries, reflecting the changing global realities,” the countries said.

“Progress on all other governance issues is contingent on urgent and satisfactory outcome of our deliberations on this key issue,” the countries said.

In the meeting, some developing countries accused Strauss-Kahn of being dismissive of quota adjustments and trying to rush through the reforms, including changes that would give him more authority while weakening the role of the existing board of member countries.

Emerging-economy countries are being asked to contribute more money to the IMF to help rescue a struggling global economy and want greater oversight of rich nations, which have often ignored IMF advice and are blamed for triggering the current financial crisis.

The politically sensitive issue of IMF voting power is shaping up to be a key subject at meetings in Turkey in early October of the IMF’s 186 member countries.

China’s director argued that trying to address broader reforms such as the selection of the head of the IMF and the size of the board without first fixing the issue of voting power was like “putting the cart before the horse.”

Emerging economies have long pushed for a more open process of selecting the head of the IMF, which since the inception of the institution more than 60 years ago has always been a European, while the World Bank president is always American.

DAMAGING DELAYS

In his statement, Strauss-Kahn sought to reassure the board that rebalancing members’ quotas was central to IMF governance, but added, “Given that progress on quotas will take time, I fear it will damage our credentials as a reform-minded institution if we were to put off debate and consideration of all the other governance issues until the quota question is resolved.”

The idea of a council was first proposed by a outside panel led by former South African Finance Minister Trevor Manuel as a way to bring more political weight into IMF decisions.

The council is already provided for in the Fund’s Articles of Agreement and would replace the 24-member policy-setting International Monetary and Finance Committee (IMFC) currently chaired by Egyptian Finance Minister Youssef Boutros-Ghali.

Strauss-Kahn has strongly backed the proposal for a council saying it was important to put decisions over the IMF’s strategic direction more into the hands of political leaders.

But he said the proposal had become overly controversial, dismissing suggestions it was aimed at undermining the board.

“Too many have cast this as a zero sum game of board versus council, of technocrat versus politician, of pragmatist versus idealist. I do not see it that way,” he said, adding that getting political leaders to focus on key economic issues could become difficult once the global crisis recedes.

Director for France and Britain expressed support for council to oversee decisions of the IMF, arguing it would advance policy coordination among the IMF’s membership, while Germany said the matter required further discussion.

Editing by Tomasz Janowski

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