By Arun Kumar, IANS
Washington : The International Monetary Fund (IMF) has proposed a few changes in its voting mechanism to give larger developing countries like India a little more say in the running of the 185-nation lending organisation.
The proposed compromise changes approved by the IMF board here Friday would increase India’s votes to 2.34 percent, up by a mere 0.42 points percentage points, while the total power of developing nations would go up by just 1.6 points.
Dominique Strauss-Kahn, who took over as head of the IMF last September with a vow to make it more relevant, said the change would help restore the 68-year-old organisation’s credibility. “It’s a first step; others will follow,” he said at a news conference. “There was no other way to move.”
The move would boost the voting shares of emerging economic powers like India, China, Mexico, Brazil and South Korea, who for more than a year have been demanding a bigger role in IMF decisions. At the same time, it would reduce that of others like Russia, Egypt, Saudi Arabia, Venezuela, Argentina, Chile and South Africa.
According to the IMF, the basic votes for each member triple under the package, the first such increase since the fund’s inception in 1944. This tripling of basic votes is important as it results in an increase in voice and representation for most emerging market and low-income countries.
The proposed reform package will increase nominal quotas ranging from 12 to 106 percent for 54 countries, with some of the largest gains going to dynamic emerging market economies; the aggregate shift in quota shares for these 54 members amounts to 4.9 percentage points, it said.
India along with other underrepresented emerging market and developing economies, whose shares in global GDP in terms of purchasing power parity (PPP) are more than 75 percent greater than their actual pre-Singapore quota shares, will receive a minimum nominal quota increase of 40 percent from their pre-Singapore level.
“We’re not happy about the proposal because it falls short of what we had expected, hoped for and we had strived for,” said India’s Executive Director to the IMF, Adarsh Kishore. “We had two choices: some forward movement; the other is no movement at all,” he told a news agency.
All but five – Egypt, Iran, Saudi Arabia, Russia and Argentina – of the IMF’s 24-member board members supported the voting share change.
France and Canada backed the changes even though the plan will cost them some voting power in the short term. Strauss-Kahn said these nations recognised they may be better off with the new formula over the long run.
The US, the leading contributor to the IMF and its biggest shareholder, agreed to forego an increase in its stake to which it was entitled, the IMF said.
The changes must be approved by the IMF’s governors before April 28 and will be discussed when they meet April 12 in Washington.
Strauss-Kahn described the agreement as a major step forward to rebalance the voting power from over-represented countries to under-represented ones, although he acknowledged it was not perfect.
“I’m not pretending that the reform is done and that now it is perfect and that representation of the different countries is exactly what we should expect. No,” Strauss-Kahn said.
He said agreement was reached to revisit the issue every five years, which would periodically raise the voting shares of under-represented members according to a new voting formula approved Friday.
Overall, the changes in voting shares amount to an aggregate shift of 5.4 percentage points to under-represented countries. Still, the actual shift from industrial countries to emerging ones was a small 2.7 percentage points.
Among industrial countries, the United States’ voting share dropped by 0.292 percentage points to 16.732; so did the shares of Germany, France, Britain, Italy and Canada. Japan was the only industrial country whose voting shares increased.
The new quota formula contains four variables expressed in shares – GDP, openness, variability and reserves – with weights of 50 percent, 30 percent, 15 percent and 5 percent, respectively.
The GDP variable is a blend of 60 percent of GDP at market exchange rates and 40 percent of GDP at PPP rates. In addition, some of the variables in the new quota formula have been updated and modernised from those in the existing formulas.
The reform package further proposes a second round of ad hoc quota increases totalling approximately 9.55 percent (with an overall increase under the reform of 11.5 percent) to enhance representation for dynamic economies, many of which are emerging market economies, whose weight and role in the global economy have increased.