Breakthrough reported on IMF reform at G20 meeting (Roundup)

Oct 23, 2010, 6:19 GMT

Kyongju, South Korea - Leading developed and developing nations on Saturday agreed to far-reaching reforms of the International Monetary Fund, aimed at giving more weight in IMF decision-making to rising economic powers like China and India.

The reforms, reported by negotiators at an international financial meeting in South Korea, are meant to reflect the growing power of such developing countries by reapportioning IMF voting rights and shares rather than continuing to concentrate them on longtime economic powers.

Negotiators who spoke to the German Press Agency dpa described the changes as among the deepest-reaching reforms in the history of the 187-nation IMF, but did not release details.

The changes are among the top items on the agenda of finance ministers and central bankers from the Group of 20 (G20), the world's 20 leading economies, meeting for the second and final day in Kyongju, about 370 kilometres south of Seoul.

IMF chief Dominique Strauss-Kahn and World Bank President Robert Zoellick were taking part in the meetings, which are to prepare for the summit of the G20's heads of state and government in Seoul in three weeks.

The reforms, which have been debated for years, would go into effect in 2011 and see overrepresented countries lose influence in the IMF.

The IMF, whose importance has risen with the 2008-09 global economic crisis, is the watchdog of the world financial system and intervenes when governments have problems making their payments or are threatened with insolvency.

Its structure is based on the state of the world economy at the IMF's post-World War II founding, and has proven outdated with the recent rise of emerging markets in such places as Asia, Brazil, Russia and South Africa.

Heading into the meetings in Kyongju, huge differences existed between Europeans, the United States and developing countries on IMF reforms. They revolved not only around the reallocation of IMF quotas - which determine a nation's voting power, financial contributions and access to IMF funding - but also new voting rules and appointments to top IMF positions.

The US sought less influence for Europe on the IMF's executive board while the European Union came to the table ready to abandon the current power division between the Europeans and Americans, which included the current convention that the IMF's managing director come from Europe while the World Bank boss is an American.

The Europeans were also willing to give up two seats on the IMF's board but were determined to keep the board's membership at 24, rejecting proposals to cut it.

Changes to the quotas foresee at least a 5-percentage-point shift from the established economic powers to emerging markets.

Currently, the quota for the US, the world's largest economy, is 17 per cent while Japan has 6.5 per cent, Germany 6.1 per cent and France and Britain with 4.5 per cent each.

China, meanwhile, has a quota of 3.7 per cent, which fails to take into account its positions of the world's second-largest economy and biggest exporter.

While the negotiators in South Korea had made headway on IMF reforms, they were expected to concentrate on currency disputes.

The United States and Europe have accused China of artificially keeping down the value of its yuan to boost its exports, to the detriment of its competitors.

The critics said their economic recoveries are being threatened by emerging powers like China, which were gaining an unfair trade advantage by holding down the value of their currencies.

The global recovery is becoming increasingly uneven as emerging and developing powers have made a strong exit from the crisis while wealthier countries are battling sluggish growth, high unemployment and skyrocketing budget deficits.

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