Europe is heading for a showdown with the US and leading
emerging markets over radical plans to restructure the way the
IMF is run. The US wants to see the number of seats on the
24-strong executive board held by European countries slashed
from seven to just two.
Meanwhile emerging economies want the shares of votes on the
board to reflect better their growing share of global economic
growth. Again it is clear that Europe would be the loser.
Perhaps the most striking features of the whole issue is
that the debate has intensified at a time when the IMF has
suddenly recovered a role and legitimacy during the global
crisis that many had thought it had lost forever.
Giving emerging market economies more say could be vital if
the Fund is to build on its new-found relevance.
Timothy Geithner, secretary at the US Treasury, says he
supports reducing the size of the board from 24 to 22 chairs by
2010 and down to 20 chairs by 2012, while preserving the
existing number of emerging market and developing country
chairs. The US Treasury would not comment on the specifics of
the negotiations or on reports that it wants 5% of the voting
share transferred from wealthy to developing nations.
Brazil, Russia, India and China the emerging market
group known as the Brics have called for a 7% shift in
quotas in favour of emerging markets.
In a statement issued before the meeting of G-20 finance
ministers in London last month, the four said that only such a
radical step would achieve an equitable distribution of
voting power between advanced and developing countries.
This would lead the overall share of emerging market
and developing countries in the IMF and World Bank to
correspond roughly to their share in world GDP.
Guo Qingping, a deputy governor of the Peoples Bank of
China, has said that reform should focus on transferring
voting power from developed countries to developing
But as South Africas head of the National Planning
Commission, Trevor Manuel, tells Emerging Markets,
Vested rights trump rational behaviour when discussions
of IMF reform are on the table. The European Commission
has in the past proposed giving the 16 states that use the euro
a single seat with non-euro EU members sharing another.
However, EU leaders have recently dismissed calls to scale
down their role. After a meeting held to formulate a joint
agenda for the G-20 meetings in Pittsburgh and for the IMF
annual meetings, they said: The current size of the IMF
executive board reasonably well reflects the trade-off between
inclusiveness and legitimacy, and the effective functioning of
Christine Lagarde, the French finance minister, says the
issue of voting rights was somewhat superfluous.
Maybe the combined shares of European members is greater,
but we need to consider all of this. It is impossible to alter
voting rights without reviewing the whole mandate of the
IMF, she tells Emerging Markets.
This is not a matter of dodging the issue or delaying
tactics. This is because we cannot adopt a piecemeal approach.
Every time you turn over a stone, you unearth a problem that is
relevant to one country or another. If you deal with one of
these, you only address specific issues of specific
In their statement, EU leaders said any shift in voting
power should increase the votes of under-represented countries
in relation to the over-represented irrespective of whether
they are advanced or developing countries. Spain is
under-represented in the IMF, while Argentina and Saudi Arabia
are over-represented, EU sources have said. The Saudis have
made it clear they would put up fierce resistance to calls for
a reduced quota share.
Ted Truman, a veteran IMF-watcher and a Fellow at the
Peterson Institute for International Economics in Washington,
says the Bric countries have a strong argument to demand a 7%
shift in voting rights. Something of that order of
magnitude would achieve rough parity, he says.
Developed countries currently have 57.9% of the total IMF
votes and developing and transition countries 42.1%.On the idea
of cutting the European quota he says: As a group the
European countries are the same size as the US but they possess
double the votes.
The EU holds 32.4% of the votes compared with the USs
17.1%. If you think about it crudely, you could slice
Europe from, say, 30% to 23%, and it would still have more than
the US, he says. The US is not particularly
Peter Chowla, director of the Bretton Woods Project, a NGO
that monitors IMF activities, says it is in US interests to
push for a lower European vote because any reform would still
leave them with the 15% share that allows them to operate a
It is clearly Europe that needs to shrink, and the US
has an interest in taking the emerging markets side
because reform will never hurt the US and will give them better
relations with the likes of China, India and South
Proposals to change voting shares and the board make-up are
part of a major review of the governance of the Fund that has
been going on for three years. While governance covers a vast
range of issues, the debate has concentrated on three key
issues: the shares of votes held by members; the size and
composition of the board; and the way the managing director is
The next review of voting quotas does not have to be
completed until January 2011, but the IMF executive board must
deliver a report on non-quota governance issues at or before
the annual meetings in Istanbul.
Additional reporting by Thierry Ogier