The Chancellor, Alistair Darling, will tomorrow renew the Government's push to reform the International Monetary Fund and call for a greater input for poorer countries in the IMF's decision-making processes.
The IMF has been reviewing its governance – dominated by the United States and western Europe – and has been coming under intense pressure from figures such as President Lula of Brazil and the leaders of other emerging economies to change its ways.
Mr Lula has been threatening to set up a rival regional monetary fund, and said this week that "developing nations must create their own mechanisms of finance instead of suffering under those of the IMF and the World Bank, which are institutions of rich nations".
Voting in the IMF is weighted by the relative sizes of members' quotas, effectively the amount they pay to the IMF, related to their national income, though even here nations such as China, India, Korea and Brazil have been underrepresented.
The "basic votes" – 250 to each member – have a small equalising effect on the distribution of voting power, slightly offsetting the power of quotas. However, as the size of national incomes has increased, and the quotas with them, the share of basic votes in the total votes has fallen from 15.6 per cent in 1945 to 2 per cent. An 80 per cent majority is required for important decisions in the IMF: the US has 16.8 per cent of the votes, Germany and Japan 6 per cent apiece, the UK and France around 5 per cent each – not much less than China, India and Brazil combined.
The managing director of the IMF, Rodrigo de Rato, yesterday reiterated the IMF's commitment to change, stressing it needs to demonstrate its "legitimacy" to remain effective and that there was growing consensus among members.
Commenting on the growth in sovereign wealth funds, Mr de Rato pointed out they can bring stability and that it was legitimate for nations with large balance of payments surpluses to look beyond US government securities to deliver income for future generations. However, he called for greater transparency.
On IMF reform, he likened the process to a marathon. Mr de Rato's proposal is "for at least a doubling of the basic votes that each member possesses... [to] at a minimum protect the existing voting share of low-income countries as a group".
However, Mr Darling will propose a tripling of the basic vote. This will benefit lower-income and African countries in particular, though it would still leave the rich nations with an overwhelming say, to the dismay of the NGOs.
Elizabeth Stuart, senior policy adviser for Oxfam, commented: "If the poorest members of the fund have almost no say, we cannot call this a true reform. The only way to bring real change is to introduce a double majority voting system. This would require a majority of voting shares and voting countries, thereby effectively removing the rich-country veto."
The US and the EU have traditionally carved up the leaderships of the IMF and World Bank between them, witnessed recently in the selection of Dominique Strauss-Kahn as Mr De Rato's replacement in November.
Mr Darling will say he believes the developed world needs to go further than existing proposals to protect low-income countries' voting share, and that the developed world has an obligation to enhance them.
Mr Darling will also press for concerted action to improve international financial transparency following this summer's difficulties in the international markets. He will tell fellow IMF and G7 members "it is essential we take action". The British Government's IMF agenda also includes working with other G7/IMF members on international agreements on solvency.Reuse content