By Paul Blustein
Washington Post Staff Writer
Friday, September 1, 2006
The International Monetary Fund took a first step yesterday toward retooling itself to reflect major changes in the global economy, agreeing to increase the power that several fast-growing countries have over its policies and promising to boost their clout more in the next two years.
The IMF's executive board, which represents its 184 member countries, approved a resolution that would modestly increase the voting power of China, South Korea, Mexico and Turkey immediately. The resolution, which still must be approved at the fund's annual meeting in Singapore on Sept. 19, also sets forth a plan to revamp the formula for determining voting shares by the 2008 annual meeting.
The vote change is the initial stage of a broader initiative aimed at refocusing the IMF's priorities and giving high-growth emerging countries, especially in Asia, a bigger say over its operations, commensurate with the size of their economies.
Known chiefly in the past decade as a financial firefighter that sought to rescue emerging countries stricken by crises, the IMF is being prodded -- in large part by the United States -- to be more active in addressing global trade imbalances and other problems that menace the world economy.
That role would presumably include confronting countries whose currency policies are contributing to the imbalances -- the most obvious example being China, which many economists criticize as keeping the value of the yuan too low and thus giving its manufacturers an unfair competitive advantage.
At the same time, the IMF is seeking to address complaints that the apportionment of individual countries' voting power has not changed in 30 years despite wide shifts in the relative size of their economies. For example, China's economy has grown to twice the size of those of Belgium and the Netherlands combined, yet Belgium and the Netherlands together have 1.5 times as many votes.
At the fund, decisions are mostly approved by consensus, so voting power has little practical importance. But given the perception that the U.S. government dominates the institution, changing voting shares "is important symbolically," said Edwin Truman, an expert on the IMF at the Institute for International Economics.
Accordingly, the board decided to increase the overall number of votes immediately by 1.8 percent, with the extra voting power divided among China, South Korea, Mexico and Turkey -- four countries whose votes have particularly lagged behind their economic clout. A resolution adopted yesterday also committed the IMF to a second stage of changes -- one expected to increase those countries' votes further, along with a few other underrepresented countries, while decreasing the votes of countries such as Belgium.
Yesterday's resolution was approved only after the objections of some poor nations, especially in Africa, were addressed. Critics have long accused the IMF of running roughshod over poor countries by insisting on harsh austerity policies in exchange for loans, and IMF managing director Rodrigo de Rato has vowed that poor countries' voting shares will increase. Under yesterday's agreement, a second stage of increases in fast-growing countries' votes would not take effect until the poor countries got their increases, too.
"We're pleased that the IMF board is moving this process forward," Brookly McLaughlin, a Treasury spokeswoman, said in a written statement. "An effective IMF needs a modern governance structure that legitimately represents its members."