By Emad Mekay
WASHINGTON, Aug 1 2006 (IPS)

The International Monetary Fund (IMF) says it is moving to give poor nations greater say and representation on its board of directors and to refocus its work to help prevent financial crises in those nations.

In a speech on the IMF’s role in developing countries, the head of the IMF said the planned increase in voice and representation will not only benefit the so-called emerging countries, a term that describes major developing nations that have followed economic prescriptions from the IMF and the World Bank, but will also include poor nations.

IMF Managing Director Rodrigo de Rato said he will make concrete proposals to widen those nations’ representation in the Fund before the IMF holds its high-profile joint annual meeting with the World Bank in Singapore in September.

“Low-income countries as well as clearly under-represented emerging market economies have reason to be concerned about their voice and representation in the Fund,” de Rato told the Washington-based Centre for Global Development, a think-tank, on Monday.

“I will be making specific proposals on how to take these governance issues forward in the run-up to our annual meetings in September in Singapore, and I hope to secure the support of the membership for these,” he said.

De Rato gave a glimpse into his proposal by saying that the increase will be in the number of “basic votes,” which are the minimum and equal number of votes, unrelated to quota size, to which each member in the the 184-member IMF is entitled.

The original proposal for greater representation was widely viewed as one that will only give powers like China and South Korea greater say rather than poorer nations.

During the IMF and the World Bank’s semi-annual meetings in April, rich nations, which dominate the two organisations, approved a sweeping plan by de Rato, the Fund’s Medium-Term Strategy (MTS), to recommend measures to restore the IMF’s role in the international economy and shore up its loans and increase representation.

Critics of the IMF say the organisation is not relevant any more to middle income countries and even sometimes to poor nations as many of them accumulate their own reserves or borrow from the commercial market that lends without the much-despised policy conditions and economic advice that the IMF requires of its borrowers.

Poor nations and many non-governmental development organisations often complained that the IMF policies are so skewed in favour of rich nations that dominate the board and against poor nations who have little or no voice in how the Fund, theoretically an international organisation, makes its decisions.

In his speech, the IMF’s top official also charted another role for the Fund vis-à-vis poor nations. He said his institution will work to make sure that those nations that are receiving debt relief from international donors do not fall quickly back into debt.

He said the Fund’s task for them would be “to ensure that there is not another debt crisis.”

“There is a serious risk that the hard-won gains from debt relief will be lost if the countries concerned borrow to finance expenditures that are not growth-promoting, and thus replace the debt that has been removed with large amounts of new debt, possibly on worse terms,” he said.

The IMF says there are already signs of new lenders – some private, some official like India and China – rushing in now that debt has been reduced.

According to de Rato’s plan, the Fund and its sister institution the World Bank will work to help those nations understand the “risks of a rapid build-up of debt” and will help them design medium-term debt strategies aimed at avoiding unsustainable debt.

De Rato said the Washington-based Fund can also sound the alarm to official creditors when debt or debt service levels are likely to become a problem.

The IMF also urged rich nations to give poor nations more aid as a source of alternative fundng.

He further proposed that donors offer those nations substitute debt sources, however, through grants and highly concessional loans “to enable them to finance development without relying on expensive debt,” a proposal that may find resistance in the U.S Congress, which oversees U.S. funding for the Fund and the World Bank.

But Jim Saxton, chairman of Joint Economic Committee in the U.S. House of Representatives said that budget problems that the IMF faced recently were actually exacerbated by excessive IMF interest rate subsidies.

Saxton, whose country is the main power broker in the fund, has long called for reform of the IMF and an end to IMF loan subsidies.

“The IMF offers loans with below-market interest rates conditioned upon policy changes required of borrowing countries. These conditions are often avoided or resisted by borrowers,” Saxton said.

“If the IMF raised interest rates and relaxed additional conditions that are often problematic, perhaps it could better support itself over time.”

But de Rato’s proposals are not without fans either.

Kemal Dervis, the administrator of the United Nations Development Programme (UNDP), who was in attendance when de Rato made his speech, welcomed de Rato’s support of the IMF’s involvement in low-income countries and the pledge to address governance issues..

“I strongly welcome the managing director’s words… on governance, voice and greater weight for poor countries in the IMF board,” he said.

Liliana Rojas-Suarez, an analyst with the Centre for Global Development, said de Rato’s proposals are met with a mix of “welcome and caution” in the development community and echoed views that doubt there is a culture at the IMF that would actually allow change.

“Welcome to your efforts… and caution because people still question the extent to which the current institutional environment can change as quickly as you would like,” she told de Rato.

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