IMF proposes quota increases for China, South Korea, Mexico and Turkey
Friday, September 1, 2006
The Executive Board of the International Monetary Fund has agreed on a proposal to increase the quotas of China, South Korea, Mexico, and Turkey, the IMF Managing Director Rodrigo de Rato announced. The increases are part of a program of reforms for the organisation, addressing its governance and its macroeconomic monitoring process. The proposals need final approval at the annual meeting scheduled later this month.
Speaking at a press briefing in Washington DC on August 31, Mr. de Rato spoke on the current state of the global economy and outlined the reforms, which include a two-phase reshaping of the quota shares - the proposed increases announced today followed by the development for a new formula to come up with increases for a broader range of members.
The Director said that the global economy has been resilient in the past year, and that growth prospects are still very good. While growth in the United States is moderating, He said, Europe has been above "most people's expectations", Japan appeared to have "put deflation behind it", China and India showed strong growth and many other countries, including in sub-Saharan Africa, are enjoying a continuation of last year's strong growth.
He added that inflation risks were a concern, along with high oil prices that could adversely affect inflation and growth. He also noted the collapse of the Doha round of trade talks as a "major setback" and that global economic imbalances "remain large". He called for economies to adjust to high oil prices and governments to reassess policies on subsidies, more labour reforms and better social security nets.
Asia: Current status and prospects
Focusing on Asia, Mr. de Rato said that the strong growth is undergoing some "modest rebalancing", with exports slowing in tune with global growth but domestic demand strengthening. He also said that the business environment in Asia needs to become more attractive with more efficient financial integration.
In line with the Indian central bank, the Reserve Bank of India's (RBI) statement earlier this week that the outlook for inflation in the country is "clouded", Mr. de Rato said that some inflationary pressures were building. The RBI had forecast a 5 to 5.5% average inflation or the 2006-2007 fiscal year, in July.
Mr. de Rato called for China to implement "more forcefully" its foreign exchange regime and "let market forces" determine the value of its currency, the Yuan, adding that it was in China's own interest to do so. The United States partly blames the weak value of China's Yuan for its huge trade deficit, which hit a record $805bn (£423bn) last year.
The proposed two-year reform program, the Medium-Term Strategy, was initiated by members in April. The current proposal, backed by the United States and Canada, was approved by an 85 percent majority of the IMF's 24-member board. The proposal will now be presented for final approval at the fund's annual meeting in Singapore on 19-20 September.
The change in the Fund quotas, which largely determine the voting powers of members is proposed to be a two-phase affair. The proposed ad-hoc quota increases for the four "clearly under-represented" countries, followed by a second round of adjustments for a broader range of members, based on a yet to be determined quota formula. Mr. de Rato said that the Board will ask the governors to "enhance the voice of low-income members through an increase in basic votes", adding that an effort is underway to increase resources for the offices of African Executive Directors. The quota increase for China, South Korea, Turkey and Mexico together come up to a 1.8% increase, board officials told Reuters.
Mr. de Rato said, "relative quotas and voting shares of our members do not adequately reflect the greatly increased economic weight of major emerging market economies" and, "initial ad hoc increase will only correct about one third of the very heavy underrepresentation of quotas... Many other countries are underrepresented too. These four cases were accepted by the Board"
An IMF member country's quota, the amount of money it contributes, is determined by the gross domestic product (GDP), account transactions, official reserves and other economic conditions. The quota also determines the voting stake in the IMF and is reviewed every five years.
|United States||17.4 %|
|France, Britain||5.0 % each|
|Sub-Saharan Africa||4.6 %|
In the new formula for determining quotas, the United States is lobbying for greater emphasis on GDP, with other factors such as exports and reserves counting for much less. The slower-growing European nations have resisted such a change. The ad-hoc increase of quota is also opposed by India.
African countries spoke out against the ad-hoc increase proposals, saying it would mean a delay in expanding the role of the poorer countries, many in Africa. They called for countries to block the proposal. The UK Chancellor, Gordon Brown has previously backed demands for greater African voice in the IMF. He currently chairs the IMF's international finance and monetary committee.
Economic monitoring and analysis
The reform program also initiates the Multilateral Consultations, where IMF members will discuss policies to address regional or systemic issues. The first such consultation has began with China, the Eurozone countries, Japan, Saudi Arabia and the United States focusing on narrowing global current account imbalances.
The IMF director also spoke of the need to improve the quality of the Fund's economic analysis. In particular, he said that the assessment of whether exchange rates are in line with economic fundamentals, which is currently performed for industrial countries, needs to be extended to emerging economies. He called for proceeding with caution, though, pointing to the methodological difficulties and market sensitivities involved.
He also said that the fund was working on developing better crisis prevention financial instruments for emerging markets with robust fundamentals and that the Fund would "continue to strengthen and focus our support for low income members".
The 184-member IMF was established in the aftermath of the Second World War, with a mandate to ensure global economic stability by monitoring currency, trade and fiscal policies of countries and providing low-cost loans to countries in financial distress.
The United States, Japan, Britain, Germany, Russia and France have single seats on the IMF's 24-member governing executive board. Europe commands the largest representation, with eight seats, Asia has five, the Americas four, Middle east three and Africa has two.
Critics have said that the IMF fails to represent the needs of most developing countries; Nobel laureate and former World Bank chief, Joseph Stiglitz has blamed policies prescribed by the IMF when it loaned funds to countries in crisis for deepening their economic problems.
- "Doha round of trade talks suspended after negotiations fail" — Wikinews, July 25, 2006
- "IMF board of governors to take up quota issue" — , September 1, 2006
- Associated Press. "IMF to give 4 nations more influence" — , September 1, 2006
- "IMF to give China a greater say" — , September 1, 2006
- Lily Nonomiya and Kevin Carmichael. "China, Mexico to Have More Clout in IMF, de Rato Says (Update2)" — , September 1, 2006
- "UPDATE 3-IMF boosts voting power of China and three others" — , August 31, 2006
- Press Release: "Opening Remarks by IMF Managing Director Rodrigo de Rato" — International Monetary Fund, August 31, 2006
- "Africans oppose IMF reform plan" — , August 31, 2006
- "FACTBOX-IMF quotas under the spotlight" — , August 30, 2006
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