TORONTO | Sun Jun 27, 2010 9:40pm EDT
TORONTO (Reuters) – Group of 20 leaders pledged on Sunday to push for agreement on greater voting power for emerging economic powers in the International Monetary Fund by the next summit in Seoul, South Korea, in early November.
The leaders from major developed and developing nations reiterated their commitment to a shift in power to dynamic emerging economies of at least 5 percent, agreed at a G20 leaders’ meeting in Pittsburgh last year.
They called for an agreement by the next G20 summit on November 11-12. The agreement will have to be ratified by the IMF’s 187 member countries by January 2011.
The shift will boost the say of countries such as China, India, Brazil and Russia in the IMF, which has long been dominated by the United States and European countries.
Emerging economies hold less than 45 percent of voting shares in the IMF. They want an even bigger voting shift than 5 percent to reflect their growing economic influence.
But the IMF negotiations pose political challenges because European countries must accept the biggest cuts in their votes in the IMF, an institution that influences global economic policies.
“We called for an acceleration of the substantial work still needed for the IMF to complete the quota reform by the Seoul Summit and in parallel deliver on other governance reforms, in line with commitments made in Pittsburgh,” said the communique, published after the G20 meeting.
“Modernizing the IMF’s governance is a core element of our effort to improve the IMF’s credibility, legitimacy, and effectiveness,” it added.
GET THE DEAL DONE
The negotiations have taken a backseat to the fiscal crisis in Europe and concerns over the global recovery.
IMF chief Dominique Strauss-Kahn said IMF membership needed to decide on changes in the IMF voting power, but he expected the increase in China’s voting power to be “rather big”.
Chinese President Hu Jintao urged faster action to get the deal done.
“We need to continue to push forward the reform of international financial institutions, move more quickly to adjust IMF quotas, allow more people from emerging markets and developing countries to take senior posts at international financial institutions and increase the representation and voice of developing countries,” he said.
China scored in a recent shift in power in the IMF’s sister organization, the World Bank, overtaking Britain and France to rank third behind the United States and Japan in voting power.
South African Finance Minister Pravin Gordhan said the IMF needed a new formula to redistribute votes, and some countries’ power will be diluted.
“The critical challenge will be how countries will have to give up something in order for others to get something,” he told Reuters in an interview on the sidelines of the G20.
“We’ll now have to think about the sacrifices they will have to make in order get, if you like, the institutional rebalancing right in the IMF and indeed, the World Bank as well. We remain optimistic.”
Some members believe that subscriptions that determine a members’ voting power in the IMF need to be doubled also to boost the Fund’s resources.
Russian President Dmitry Medvedev said IMF reforms and broader governance changes, including the selection of the head of the IMF and composition of the IMF board, need to be “taken to the finish”.
The head of the IMF has always been a European, while the president of the World Bank has always been an American. But emerging and developing countries argue the process should be based on the best qualified person, not their nationality.
MONEY FOR TACKLING POVERTY
The G20 called for a “an ambitious replenishment” for the World Bank’s lending facility for the poorest countries, the International Development Association and the African Development Fund.
The IDA is the world’s largest fund for the poor and negotiations are under way to raise new funds for it. During the last replenishment in 2007, China joined as a donor and may be asked to dig a bit deeper amid fiscal pressures in developed countries.