SINGAPORE, Sept 17: The IMF is in the process of reforming itself amidst growing criticism over its capacity to respond to a call for support by a member nation and its relevance in its current form in the new century.
“We are creating IMF for the future,” Gordon Brown, Chancellor of the Exchequer of the UK and chairman of international monetary and financial committee, said answering a question.
He was addressing a press conference at the conclusion of his committee’s meeting on Sunday.
He gave a detailed account of the proposals finalised by the committee. He said: “Subject to the adoption of the resolution the 2006 meetings would initiate an integrated set of reforms, to be completed no later than by 2008 meetings.”
Elaborating features of the reforms he said the institution needed to adapt to a changed world in order to regain credibility.
Starting with initial quota increases for China, Korea, Mexico and Turkey, this package of reform when implemented would make significant progress in realigning quota shares with members’ relative position in the world economy. It will enhance the participation and voice of low-income countries.
He said the committee urged the executive board to work constructively and expeditiously on all elements of the reforms so as to garner the broadest possible support, underlined the importance of timely implementation of the programme and called on the MD to provide a status report in the next meeting.
The resolution also commits the fund to a broader review of how it allocates voting power in future. “Some representatives had conflicting suggestions but in the end they all agreed to one set of proposals that reached you as our communiqué,” he said.
The credibility of the fund has increasingly been questioned in the developing world, where it is perceived to be a manipulating arm of the developed countries.
The proposed resolution was described as ‘the most significant change in the fund governance since its creation in 1960’.
When the attention of the chancellor was drawn by a journalist to suggestion by some countries regarding the criteria of judging a country’s performance the chancellor brushed aside the impression of division in the committee.
Besides 85 per cent is the magic number the IMF needs for major reforms to be approved.
The group of industrialised countries supported the reforms. “We welcome the resolution on quotas reforms and urge all members to support it,” it said in a statement.
IMF members are given voting rights called quotas, based on the size of their economies and reserves, as well as their openness to trade and capital flows. While some economies, especially in Asia, have grown rapidly over the last few years, the fund voting structure has not reflected this change.
The US has effective 17 per cent of the votes. Some European nations such as Belgium have more voting power than larger developing countries like Mexico and South Korea.
The IMF reforms are in two stages. In the first stage, China, South Korea, Mexico and Turkey will receive a one-off increase in their voting rights. The second stage involves an overhaul of the formula to calculate voting rights, followed by a second round of hikes for developing economies.
There will also be increase in ‘basic votes’, which are the votes all countries get irrespective of economic size. This will help the poorest countries whose economies have grown relatively slowly. Despite the apparent show of support the reforms have been controversial.
European finance officials continued to oppose the US proposal that votes should be computed according to gross domestic product, saying that the US would have the advantage.
The Group of 24 developing countries from Africa, Latin America and Asia seemed divided on how they vote for the reforms.
On Saturday Argentina, Brazil, India and Egypt issued a joint statement saying they opposed the reforms. They fear that the second stage of reforms may not happen.
