EU worries about loss of influence in IMF


Plans pushed by the US to boost China’s influence in the International Monetary Fund could be to the EU’s detriment and potentially divide Member States.
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Europe’s current share of 23% of quotas is roughly equal to its share of the world economy. The US, on the other hand, represents 30% of the world economy but only 17% of the quotas. 

Because the quota system has not been revised for years, emerging economies such as China, South Korea and India are grossly under-represented. For example, although China’s economy is now double the size of Belgium and the Netherlands combined, both European countries continue to have a larger quota than China. 

De Rato requires backing from 85% of the IMF for his two-stage reform programme to rebalance voting power. But the proposal is encountering resistance at various levels. 

India is unhappy with the plan as it is not included in the first-phase increase and doubts that developed countries will agree to give up their quotas in the second stage. 

Poor countries in Africa are also opposing the reshuffle, as they fear a loss of power in an organisation that often dictates their economic policies. 

Resistance is also coming from Europe which, as a whole, would lose voting share to Asia and the United States. 

The proposal is also threatening to divide the EU internally. Belgium, the Netherlands and Scandinavian countries are opposed as they would lose voting power. But Spain, Ireland and other rapidly growing countries in the bloc would benefit from the reform. 

The Bush administration says that Europe must recognise that its share will go down, as the United States' share has. This would help to address the fact that “many countries in the world are woefully underrepresented", according to Timothy Adams, the US under-secretary of the Treasury for international affairs. 

German Bundesbank President Axel Weber has urged caution, saying: "A broad package has to be found for a more transparent and fair representation of all IMF members. To that end, European Union countries should not prematurely relinquish their own justified positions and claims." 

According to the Guardian, a source close to Gordon Brown, Chancellor of the Exchequer and chair of the IMF’s decision-making body, the International Finance and Monetary Committee, said: "Britain supports reform of the IMF, but the chancellor's commitment to a stronger voice for Africa is very clear… We share their concerns." 

The European Parliament is likely to support the reform although it will also wish to ensure proper representation of African countries. In March 2006, it adopted a resolution on the strategic review of the Fund, in which it called on the IMF, “in the interest of its own legitimacy, to consider possible means of distributing the quotas and voting rights within its governing institutions in such a way as to make them more representative of the international economic situation and to enable more appropriate weightings to be given to the developing and emerging economies”. 

It pointed out that while African countries account for 25% of the membership, they have little more than 4% of the vote. 

But MEPs are also likely to criticise EU governments for yet again failing to speak with one voice in the institution. 

The March resolution had also called on member states "to work towards a single voting constituency - possibly starting as a euro constituency, with a view, in the longer term, to securing consistent European representation, involving the Ecofin Council Presidency and the Commission, subject to the European Parliament's scrutiny". 

The IMF's 184 member countries will meet on 19-20 September to consider reform proposals for the financial institution’s voting system, to better reflect the global economy as it stands, rather than when the Fund was set up at the end of World War II. 

Voting at the IMF is determined by a quota system that defines how much a country must contribute to the fund and how much it can borrow in emergencies. 

IMF Managing Director Rodrigo Rato is proposing a two-phase reform of the system which would first see the most under-represented countries – China, South Korea, Turkey and Mexico – gain a minor increase in their voting power. A second round of adjustments would then follow, based on a new formula for calculating quotas. 

  • 19-20 September 2006: IMF Annual Meeting in Singapore

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