The International Monetary Fund failed yesterday (31 January) to meet a self-imposed deadline for agreeing on a new formula that would reduce EU voting power and give emerging economies greater say in the global financial institution.
IMF member countries have wrangled for two years over specifics of the formula intended to reflect the rise of China, Brazil and other large emerging market economies.
The IMF said it planned to finalise a formula by January 2014, when it next reviews the voting shares of member countries.
An IMF statement on Thursday said there had been "important progress in identifying key elements that could form the basis for a final agreement on a new quota formula."
"The board has had an enlightening series of discussions during the past year, and the membership is now in a good position to agree on an improved quota formula in the context of the upcoming 15th general review of quotas," IMF Managing Director Christine Lagarde said in the statement.
Emerging economies blamed Europe for resisting change that would weaken its traditional domination in the fund.
Paulo Nogueira Batista, executive director for Brazil and 10 other countries, decried the lack of a deal after two years of negotiations and warned that the IMF would lose credibility unless it changed.
He said governance reforms had practically ground to a halt since 2011 when the fund failed to enforce voting changes agreed in 2010. "Now we have an attempt to paper over the fact the review of the quota formula has not been completed either," Nogueira Batista said in a statement. "The IMF is approaching what we could call a 'credibility cliff'".
IMF member countries have squabbled for months over specifics of the formula that calculates each members' voting power in the IMF, with emerging market economies pushing for changes that would give more weight to purchasing power GDP - which measures the buying power of an economy instead of just the dollar value.
European countries have sought more emphasis on openness, the most hotly debated of all the measurements, because it captures among many things the vast trade flows between eurozone countries. Removing, or scaling back, the openness measure would sharply reduce Europe's influence in the IMF and shift power to China, India and Brazil.
Member countries set a January 2013 target for a reconfigured formula but many expected the deadline would be missed because of a continued inability to narrow differences.
"A new quota formula remains key to the indispensable rebalancing of decision-making power in the IMF," Nogueira Batista said. "Without this rebalancing the institution will not be able to retain its centrality in the world economy in the years to come."
Under the current formula, he said the Netherlands' quota share was close to that of Brazil, which is a much larger economy. Meanwhile, the quota share of tiny Luxemburg is larger than Argentina or South Africa and three times bigger than Morocco, he argued.
Developing countries also resent the European monopoly over the top job at the Fund, seen most recently when they pushed through the nomination of Christine Lagarde, to replace the previous French head Dominique Strauss-Kahn.