WASHINGTON (Reuters) – The United States urged major reform of the IMF yesterday, throwing its weight behind efforts to give a stronger voice to emerging nations whose burgeoning clout is increasingly vital to the world economy.
With advanced economies — the biggest backers of the International Monetary Fund — struggling to cope with the worst recession since World War Two, the institution must look beyond its core donors to raise financial rescue resources.
But China and other developing economies contend they are under-represented in global financial institutions like the IMF and World Bank. They say if they are to put up more money, they need more influence on how those funds are used.
Giving more votes to the emerging economies would come at a cost to western European nations that, along with the United States, have long wielded power at the IMF, and some of those countries pushed back against the US proposal yesterday.
“I think for the moment the representation around the table is attractive,” Belgian Finance Minister Didier Reynders told Reuters. “The European countries are having to finance the Fund very strongly, so we have to take into account the size of each country’s participation in the Fund.”
In issuing the US call for a reordering of the IMF’s power structure, Treasury Secretary Timothy Geithner, who worked at the IMF from 2001-03, said the time had come for the Fund’s governance to reflect the changing world.
“This is essential to strengthening the IMF’s legitimacy, ensuring that it remains at the centre of the international monetary system and reflects the realities of the 21st century,” he told a meeting of the IMF’s steering committee.
The Group of 24 emerging and developing countries, meeting on the sidelines of the IMF and World Bank meetings here this weekend, called for a substantial increase in voting power, pointing out that it was in rich countries — namely the United States — where the current financial crisis began.
That would require radical adjustment to the IMF’s voting structure through a redistribution of IMF quotas, which determine each members’ voting power and how much they can borrow.
“Much bolder action is required to realign quotas toward dynamic emerging-market economies, and the next general quota review is an opportunity that must be seized,” Geithner said.
“Minor adjustments around the edges are inadequate to an IMF for the 21st century.”
Washington’s commitment to reform carries special weight because it is the Fund’s biggest single shareholder and has veto power at the IMF, although it has never used it.
The quota reform push comes at a critical time for the Fund, which is looking to reserve-rich emerging powerhouses like China for a greater contribution.
With much of the global economy in recession, and emerging markets under severe pressure as exports dry up, international lending institutions are facing a rising demand for loans.
“Crises are an appropriate time for learning what we did wrong and trying to avoid repeating the same mistakes. The IMF repented from many of its past sins. But it still has to address the original sin: its democratic deficit,” Brazilian Finance Minister Guido Mantega said.
