IMF rethinks its future

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The Independent Online
Like most annual meetings, the IMF's gathering in Washington presents delegates with an agenda that is supposed to be pretty much sealed up well before they get their chance to vote on it. The achievements of this year's meeting, such as the initiative to reduce the debt burden on small countries, have been crafted by officials during the past six months. The real issue for discussion during the active round of cocktail parties is the shape the IMF and other international institutions will need to take as the global balance of economic power shifts.

It is now plain that there are some big new kids on the block. Up-and- coming countries such as Korea, because of its wealth, and China, because of its size, will without doubt become important economic powers. The question is how the Fund needs to evolve to recognise these new economic forces on the world stage.

The first step has been taken. The "new arrangements to borrow", the emergency source of funds created in response to the Mexican crisis, incorporates some of the new powers such as Korea, Malaysia and Singapore.

The next steps are under way, with the IMF's appeal to members for an increase in quotas. These are the member countries' shareholdings in the Fund. The IMF would like to use a quota increase to double its capital in a way that reflects countries' relative importance in the world economy.

Negotiations will go ahead in the hope that proposals can be put to a vote next year. But there are big question marks. One is what it will mean for the industrial countries. In particular, will the single currency mean the need for a single European voice at the IMF and what will that imply for Britain if it stays out?

Although there is no immediate threat to the UK's strong voice in the organisation, it looks sure to diminish over time - hence Mr Clarke's attempt to get some of his free market principles written into the IMF's list of objectives. More important, there is the issue of how countries with very different political cultures can be incorporated in a system of decision making that has always been based on a shared model of democracy. So far, the biggest difference in world view the institution has had to accommodate has been between that of the Germans and the Americans. But as the shadow hanging over next year's meeting in Hong Kong shows, inviting China and others to step into the boardroom could be fraught with difficulty.