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China deserves greater role in IMF's reform

By Yi Xianrong (China Daily)
Updated: 2009-03-24 07:46

All G20 summits are important, but the continuing global financial crisis has added to the weight of the one scheduled for early next month. That's why last week meeting of the finance ministers and central bank chiefs of G20 countries to prepare for the all-important summit drew unprecedented attention.

The focus of the participants at the weekend meeting was on how to tackle the financial crisis, reconstruct the flagging global financial system and reform the international financial organs. Despite differing on a variety of issues, the financial and central bank chiefs agreed to increase the funding of the International Monetary Fund (IMF) and expedite its reform.

Along with these came the call of the finance ministers of Brazil, Russia, India and China (or BRIC) that the IMF has to carry out sweeping reforms to adapt to the ever-changing global financial situation. The four countries said effective steps should be taken to increase their say and representation in the world monetary body, too.

The original aim of the IMF, which became operational in 1945, was to rebuild the collapsed international monetary order and the financial market in the post-World War II era. It was also supposed to help stabilize international exchange rates and offer workable solutions to problems of global income and payment.

But its intrinsic defects caused the US- and Britain-manipulated Bretton Woods institutions (of which the World Bank is also a part) to collapse gradually despite contributing greatly to global economic stability and development. But even after the collapse of the world financial system, international financial trade and negotiations continued to be conducted within the IMF framework.

The world economy has undergone great changes since the collapse of the Bretton Woods institutions and the end of the Cold War, and the ongoing global financial crisis has laid bare the inherent defects of the IMF. These changes, coupled with the rising importance of some emerging economies have made the IMF reform all the more necessary.

Not surprisingly, participants at the weekend G20 meeting agreed that only a reconstructed financial system can help the world better deal with the present crisis and prevent similar ailments from recurring. But rebuilding or reforming the IMF not only means thorough overhauling of its purposes, functions, and operation and management system, but also changing its US- and Britain-led power structure. For example, the Americans have had the last word on the World Bank president's selection and Europeans have chosen the IMF chief for years. Such an unreasonable practice should be changed, too.

That means the overdue reforms should give proper representation to and increase the say of emerging developing economies. Giving the countries their due can only help increase the IMF's legitimacy.

According to a reform plan approved at a IMF board meeting in April last year, developed countries' share of votes will decrease from 59.5 to 57.9 percent, while those of developing nations increase from 40.5 to 42.1 percent. But the status of the developed countries is not expected to change in the world monetary body. And if that indeed would be the case, then that's not the sort reform the IMF needs to undergo.

Proper representation and a bigger voice for the developing countries are the need of the hour. For instance, being the world's third largest economy and the largest foreign reserves holder, China should get its due place in the monetary body. But before that, the country should get to play a more active role to reform the IMF. It should be made part of the team that works out the new rules for the world body, and should work out its own reform schemes on the basis of the changed international financial scenario and after in-depth studies and review of other countries' suggestions. The team has to ensure that thorny and controversial issues of IMF reforms are resolved appropriately, keeping in mind the interests of all the parties.

To better safeguard its and developing countries' interests, China has to hold dialogue not only with the US-led developed countries, but also coordinate and cooperate with other emerging economies to play the role it deserves. This will protect its national interest and help reconstruct a new global financial market order. And to achieve all this China has to take a pragmatic rather than a rigid ideological stance.

The country's economy has been in relatively good shape despite the downturn since the government adopted a series of timely and workable macroeconomic policies. This has placed China in an advantageous position, and made it more suited to play a leading role in rescuing the struggling world economy.

In all earnestness, China deserves to be an integral part of any reconstructed global financial order. And since the reconstruction of the IMF and the World Bank is imminent, hopefully China's representation is proportional to its economic strength and contribution to the new economic world order.

The author is a researcher with the Institute of Economics and Finances under the Chinese Academy of Social Sciences.