European leaders are set to consider handing over some of their seats at the International Monetary Fund (IMF) in exchange for a bigger financial contribution to the fund by emerging economies. The aim is to double the IMF’s overall resources to $500 billion to counter the global economic recession.
The EU summit is clearly offering to “review the process for the selection of top management for the IMF and the World Bank,” provided that the reform of the IMF “reflects more adequately relative economic weights in the world economy,” according to draft conclusions to be approved today (19 March). China’s contributions to the IMF budget, in particular, is currently well below its potential (see background).
Ahead of the crucial G20 summit in London on 2 April, Europe is thus accepting that the seat held today by Frenchman Dominique Strauss-Kahn, which since 1946 has been the exclusive prerogative of Europeans (four Frenchmen, two Swedes, one Spaniard, one Belgian, one Dutchman and one German), may fall into other hands. The EU is also offering to provide “on a voluntary basis” temporay support to the IMF’s lending capacity, worth between $75 and $100 billion.
However, it is not clear how the proposal will be considered by emerging countries, certainly keen to increase their influence at global level, but less eager to commit themselves to heavier funding. The idea of swapping the top seats for more commitments might also displease the US, which may not be happy about giving up control of the World Bank.
The French EU Presidency had started to explore this route ahead of the G20 summit in Washington in November 2008. In a paper circulated among European capitals, Paris pushed the EU to commit to a wide review of the Bretton Woods institutions, but required major concessions from emerging economies and in particular China (EURACTIV 03/11/08).
The document clearly called for a review of the international monetary system, considered to be one of the causes of the “indebtedness of the global economy”. The paper asked a “clearer and more robust exchange rate analysis” to assess responsibility for the current crisis.
In a previous, unendorsed version the paper went further, explicitly asking for a “broader reflection on the inadequacies of the current international monetary system,” which stands accused of “encouraging the sterile accumulation of reserves and diverting the monetary flux of productive investments in developed countries as well as in developing countries”.
This represents a thinly-veiled reference to China, where a steady double-digit surplus in the balance of payments allows Beijing to set aside foreign currency reserves worth $2 trillion.