Pakistan backs IMF’s reform proposals: G-24, India, Brazil oppose
By Afshan Subohi
SINGAPORE, Sept 19: Leading members of G-24, India, Argentina and Brazil voted against the proposals for reforms that were adopted by the development committee of the IMF to increase the voice of developing countries in the fund. Pakistan voted in favour of the reforms.
"We hope to benefit like other developing countries from the reforms and so we backed them," said Dr Salman Shah while talking to Dawn in the sidelines of the meeting. Commenting on stance of India and others, the adviser to PM on finance said Pakistan viewed a step in the right direction better than no movement.
The reforms, which are the focus of the Singapore meeting, received 90.6 per cent votes in a forum of 184 member countries. In all 23 countries voted against the reforms.
The opposition to reforms was on the basis that it offers too little. Opposing nations were arguing in favour of more integrated reform package that is implemented in one go and not in stages as envisaged in the reforms approved.
The decision in favour of reforms paves the way for, what IMF Managing Director Rodrigo de Rato calls a 'major shake-up' in the fund, since it was set up 60 years back. It was agreed that reforms will be made in two stages.
In the first stage four countries — China, South Korea, Mexico and Turkey — are given an immediate increase in quotas to match their relative importance in the world economy.
Quotas determine a country's voting rights and therefore its degree of influence in the fund.
China's new share of quotas is 3.72 per cent (from 2.98pc), Mexico's is 1.43 per cent (from 1.21pc), South Korea's is 1.35 per cent (from 0.77pc) and Turkey's 0.55 per cent (from 0.43pc).
Because of the adjustments, many countries' quotas fell marginally. The US share, for example, fell by 0.3 percentage points to 17.1.
Beyond these adjustments, the IMF will begin work on a second stage of reforms that promises to be more significant to all developing countries.
This involves coming up with a new 'simpler and transparent' formula to calculate quotas to better reflect the relative weight of all economies. There, however, is no agreement on what the new formula is.
India along with other countries was campaigning for purchasing power parity as a new basis for formulating the comparative weightage of a country which could see the share of Asia, excluding Japan's jump from 12 to 26 per cent. The fund's proposal is to at least double the number of basic votes regardless of the strength of an economy.
The governors asked that the work on the new formula be completed within one year, leading to a further readjustment of formulas within two years.
These reforms have come at a time when the IMF is under pressure from developing countries to be more international. Developing countries feel that in distribution of votes G-7 countries alone has 45 per cent weightage that makes the fund work in the interests of rich countries.
The share of votes given to developing countries has also not reflected their contribution in the world economy. Belgium, with an economy half the size of Mexico's, enjoys almost twice the number of quota.
The frustration with the IMF partially explains why Asia and Latin America have floated the idea of setting up their own regional funds, experts said.
Dr Mandel, an economist from the UK, saw no hope for the World Bank/IMF to change as an outcome of the adopted reforms, which he said needed total revamping. "If you reform two per cent when the need is for 100 per cent change, it will not affect the character of the organization in a meaningful way. And this is what has happened." The researcher is working with an independent research group involved in defining the outlines of an alternative financial system that is focussed on well being instead growth.
He termed the reforms an exercise in public relation to regain credibility and legitimacy that it lost when it failed to predict or play a role in containing the damage inflicted on Asian tigers by the currency crisis in late 1990s.
