Economy

China given more powerful role at IMF

By Sandrine Rastello (China Daily)
Updated: 2010-11-08 09:39

WASHINGTON - China is set to become the third-strongest member of the International Monetary Fund (IMF) under a "historical" plan approved by the institution's board on Friday, a position allowing the country to take more "responsibility" in the global economy, the fund's chief said.

The plan "may have an influence on the behavior of the Chinese authorities", Managing Director Dominique Strauss-Kahn told reporters in Washington. "They were willing to be better represented in the IMF, which shows that they care about multilateral institutions, and I expect that they will behave having in mind the importance of their role."

Acting on an Oct 23 deal by finance chiefs of the Group of 20 nations, the IMF agreed to shift more than 6 percent of voting rights to what officials called "dynamic" developing countries. That would give more say to nations such as Brazil and South Korea, while weakening the clout of European members including Belgium and Germany. "Advanced" European countries are also set to give up two seats on the board under the package.

The aim is to make the 65-year-old institution a better reflection of a world economy that was pulled out of the recession and is still being driven by growth in emerging markets. The planned changes come at a time when the IMF has been asked to help the G20 monitor global trade imbalances and exchange rates amid tensions between its members over whose policies are most hurtful to a balanced global recovery.

Approval required

The plan, which leaves the US as the fund's largest member, followed by Japan, now requires the approval of an 85 percent majority of the 187 members' votes. Most countries will then need to go through a legislative process to enable the changes.

Strauss-Kahn said he doesn't see reasons for a new Republican majority in the US House of Representatives to delay the approval process because it's in "the interest of the United States".

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"We catch up with the reality," he said. "The ranking of the countries is really the ranking they have in the global economy."

Strauss-Kahn and officials such as US Treasury Secretary Timothy F. Geithner have tried to link access to bigger clout at the IMF to the need to act differently on the global stage, a hint at China to accelerate its currency's appreciation. China has said it has done enough to deserve more say.

'Big moment'

While the governance package is "a big moment" in the history of the fund, it is unlikely to prompt China, which moved from the sixth rank, to adopt a different stance on the yuan, said Bessma Momani, a professor at the University of Waterloo's political science department in Canada.

"For people to expect the Chinese to somehow switch gears and become very vocal at the IMF because of its increase in political weight there is very premature," she said.

After the changes take effect, the fund's 10 biggest shareholders will comprise the US, Japan, Germany, the UK, France and Italy as well as Brazil, Russia, India and China.

A smaller shift in voting rights in 2008 has still not been implemented.

The agreement ends months of negotiations that saw the US, Europe and some emerging nations at loggerheads over who should give up power.

The US, Japan and Canada are shedding some voting power under the agreement, while India, Russia and Mexico gain. Not all emerging countries are increasing their clout, with Argentina and South Africa's share falling.

Bloomberg News