Post date: Nov 06, 2010 8:3:56 PM
IMF chief calls changes a fundamental shift in IMF history.
WASHINGTON, D.C., UNITED STATES. REUTERS - In a historic decision, the International Monetary Fund board agreed on Friday (November 5) to boost the voting power of big emerging economies and make China the third leading voice in the global lender.
"It's a very important increase in the voice and representation of emerging markets and developing countries, especially among the ten major shareholders and it's also a rather big change in governance....It is a historical reform of the IMF," IMF Managing Director Dominique Strauss-Kahn told a news conference.Under the deal, first clinched by finance ministers of Group of 20 leading economies in South Korea last month, 6 percent of IMF voting shares will be transferred to "dynamic" emerging market countries from industrial economies.
The move would vault China over Germany, France and Britain into the third spot behind the United States and Japan. It would also lift other large emerging powers India, Brazil and Russia into the top 10 of the 187-member institution.
Emerging economies have gained more clout in the IMF over the past five years, but Friday's shift is by far the most significant, amounting to an overhaul of the global economic order established when the IMF was set up after World War Two.
The IMF's member countries will vote on the reforms in the coming weeks, with 85 percent of support needed for the changes to pass. Some countries will also require legislative approval,
including the United States. Strauss-Kahn said he did not believe this week's congressional elections in the United States, where Republicans won control of the House of Representatives, would delay
approval in Washington.
The move doubles IMF member quotas, or subscriptions, boosting the lender's resources by about $755.7 billion at current exchange rates, the fund said.
The board also endorsed changes in its own makeup to reduce Europe's influence on the 24-member decision-making body. European countries will give up two of the eight or nine seats they hold at any given time to emerging countries at the end of two years.
U.S.-China tensions have flared this year over business and trade, but especially over China's undervalued currency that Washington argues gives Beijing an unfair trade advantage.
Analysts believe that unless China allows its currency to rise significantly, the Obama administration may wait to submit the IMF vote changes to Congress for approval.
Strauss-Kahn said having a bigger say in the IMF came with greater responsibility in the global economy and China recognized that.
"I think... (IMF reforms) may have an influence on the behavior of the Chinese authorities. They were willing to have this position, they were willing to be better represented in the IMF, which shows they do care about multilateral institutions," he said.
"I expect they will behave, or have in mind the importance of their role," he added.
The IMF board's approval on Friday comes before next week's G20 leaders' summit in South Korea where the United States is seeking agreement to limit global trade imbalances.
Emerging economies are unlikely to be sympathetic after the U.S. Federal Reserve embarked on a new $600 billion bond-buying spree this week, sparking criticism from Brazil, China and South Africa that the Fed's money printing could weaken the dollar and send a surge of investor cash into their economies.