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G20: Europeans Resist More Clout for South in IMF

Eli Clifton

PITTSBURGH, Sep 25 2009 (IPS) - An initiative to reform the International Monetary Fund (IMF) voting structure is causing tension at the G20 here as European delegations resist a U.S.-spearheaded effort to give greater clout to emerging economies, primarily because it would decrease European voting power.

The proposed reform would increase the voting power of emerging economies in the IMF in hopes that these increasingly wealthy and influential countries would become more engaged members of the Fund.

"A shift toward emerging countries at the International Monetary Fund (IMF) and the World Bank is the right thing to do and it's going to happen," U.S. Treasury Secretary Timothy Geithner told reporters in Pittsburgh Thursday.

But some civil society groups disagree. "It is tinkering," Jon Slater, Oxfam's economic justice press officer, told IPS. "The reforms we've seen in the draft communiqué don't address the fundamental need for [change in] how votes in the IMF are allocated. The IMF will remain the rich country club."

"Our argument is that rich countries need to give up some of their powers to poor countries through votes on the IMF. The IMF makes decisions which affect the everyday lives of people in poor countries and they deserve a say in how those decisions are made," he said.

The leaked draft communiqué contained direct references to IMF voting reforms.


"[W]e are committed to a shift in quota share to dynamic emerging market and developing countries of at least five percent from over-represented to under-represented countries using the current IMF quota formula as the basis to work from," the draft said.

"On this basis and as part of the IMF's quota review, to be completed by January 2011, we urge an acceleration of work toward bringing the review to a successful conclusion."

While an increase in monetary participation and voting power is appealing to the U.S. – which is the only country with effective veto power – and the emerging economies who will benefit from greater power within the IMF, European countries, led by Britain and France, have expressed unease with the reforms, which would shift some power away from Western Europe and towards Asia and Latin America.

Critics of the IMF voting structure have long argued that it no longer accurately reflects the relative size and influence of many economies in the South.

China and perhaps one or two other influential emerging economies are likely to benefit from any announcement Friday on reforms, but it remains unlikely that a true overhaul of vote distribution would be undertaken.

IMF data shows that China has 3.7 percent of the vote in the IMF – less than France at 4.9 percent, even though China's rapidly growing economy is now one-and-a-half times the size.

"It's important that China does get a fairer representation, but it's not just about countries like China. It's about poorer countries in Latin America and sub-Saharan Africa," said Slater.

Messages have been mixed here in Pittsburgh, with conflicting reports suggesting that an agreement on reforms had either been reached or were being held back by European opposition.

Reports last night from the Chinese delegation said that an agreement had been reached, but news reports this morning and afternoon suggest that Britain and France may have dug in their heels at what they see as a U.S. effort to reduce the number of European seats on the IMF board.

Under the U.S. proposal, the IMF board would be reduced in size from 24 to 20 seats, with the reduction coming at the expense of European countries.

Word has come out of the negotiations that European opponents of the reform believe that a European reduction in IMF representation should be accompanied by a U.S. forfeiture of its veto, but the U.S. delegation is reported to argue that it has made sufficient concessions in the negotiations by keeping its voting share at 17 percent – well below its share of the global economy.

Ultimately, the dispute will test the EU-U.S. relationship at the G20 as they have fallen on opposite sides of the debate on reforms which have been long-called for by emerging economies.

German Chancellor Angela Merkel, who faces a general election this weekend, said that she does not believe that reforming global economic imbalance in international financial institutions (IFIs) should not be the primary focus of the summit.

U.S. President Barack Obama, while an outspoken proponent of IMF reform, may find himself once again playing the role of mediator between China and Europe.

At the G20 Summit in April, Obama acted as a peacemaker between French President Nicolas Sarkozy and Chinese President Hu Jintao in a heated negotiation about tax havens.

An agreement on IMF voting reform that the U.S., China, France and Britain all find acceptable would be the first step in reforming the IMF to reflect both the changing landscape of the global economy as well as the necessary inclusion of some of the world's poorest countries.

But even if the G20 agree on a reform which gives China a bigger stake in IMF decision-making, it will still be a long road ahead to the comprehensive reform which global NGOs and the world's poorest countries have pushed for.

 
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