The International Monetary Fund board on Friday will recommend a landmark overhaul in the voting power of member countries, with emerging economies saying they will settle for less than they wanted.
The proposed changes have won the support of key large emerging economies China, India, South Korea, Mexico and Brazil, which will gain voting power according to a new formula for calculating each country’s so-called quotas, or membership subscriptions. Others, Egypt, Iran, Saudi Arabia and Russia are likely to abstain from Friday’s vote because the changes reduce their votes, while smaller European nations such as Luxembourg gain. Rather than extending grueling negotiations that have stretched on for more than a year over voting power in the International Monetary Fund, most emerging economies decided to accept what they could get now and plan to keep pushing for more. “We’re not happy about the proposal because it falls short of what we had expected, hoped for and we had strived for,” India’s Executive Director to the IMF, Adarsh Kishore, told reporters. “We had two choices: some forward movement, the other is no movement at all.” Kishore said a key demand by emerging economies that a new shareholding formula should take into account economic weight by purchasing power parity (PPP), not just market exchange rates, had been accepted. “For the first time PPP has been recognized as a factor in the formula ... which is a positive sign,” he said in an interview.
Still, Kishore acknowledged that the changes, making the IMF more representative of its 185 members, would not be enough to restore the Fund’s legitimacy. “It has to be seen against a very real threat that unless we have real movement now, then we are in a real danger of eroding whatever is left of our legitimacy,” he said. “Obviously it is not entirely satisfactory, obviously we are not gung-ho about it, but we do see some forward movement,” he said. Friday’s board meeting is expected to pass a resolution recommending a new quota formula, ad hoc increases for some members and a tripling of so-called basic votes of each country.
Basic votes are distributed equally to each member regardless of economic importance, so that Africa does not lose ground to more dynamic Asia and Latin America. IMF’s board of governors, made up of finance ministers or central bank chiefs of the fund’s 185 member countries, will vote on the changes in voting power after the IMF spring meeting on April 11 and 12 in Washington.
Sources said 54 countries, mainly emerging economies, would gain voting power under the new formula including Brazil, India, China, Thailand, Malaysia, Philippines, Singapore, Hungary, Poland and Botswana. Since the inception of the IMF in 1944, Europe and the United States have dominated the institution that oversees global financial stability.
While developing and emerging economies acknowledge that proposed changes represent some progress, they say the proposals do not sufficiently shift voting power away from dominant industrial countries to developing nations, as intended. Some of the biggest opposition to the voting reform plan came this week from a group of influential Washington-based academics who said the changes fell far short of what was needed to significantly realign nations’ quotas with their rising influence in the world economy.
International development group Oxfam said the proposal meant “minimal” change in the IMF’s voting structure. “After years of debate, a proposal that gives only a small increase in quota share for a handful of developing countries -- and none for the rest -- would be more than disappointing,” Oxfam’s policy advisor Elizabeth Stuart said. “The Europeans need to give up their overly dominant position. It’s unacceptable that Ireland, Greece and Luxembourg are about to see an increase in their voice, while poor countries that make up 70% of the IMF’s work, gain nothing,” she added. (Economic Times)