Emerging economies battle for more voting rights at IMF

G20 proposal on greater say for developing nations faces further scrutiny

By Sarah Arnott
Sunday 23 October 2011 08:41

Arguments about how much influence developing economies have over the world’s financial affairs are set to dominate the International Monetary Fund summit in Istanbul this week.

There was some progress at last week’s G20 meeting in Pittsburgh, but until details are agreed, the balance of power between key economic players remains unresolved. Under existing arrangements, the industrialised countries hold 57 per cent of the IMF votes. But the financial crisis has tilted control away from heavily indebted mature economies, such as the US and the UK, in favour of the fast-growing, cash-rich, so-called “Brics” economies of Brazil, Russia, India and China.

The struggle for IMF voting rights has been rumbling for a decade, but Friday’s G20 communique ostensibly agrees to a shift of at least 5 per cent, which would take the split between developed and developing countries almost even. Any sort of agreement at the G20 was quite a coup for Barack Obama, but the question ofwhich Western powers will lose out looms large.

Given that the US is the only one of the IMF’s 186 member states with a power of veto, based on a 17 per cent voting share, it has less to lose from reform than its foot-dragging European colleagues. Britain and France are particularly reluctant to endorse the changes, given that they could slip below China in the pecking order if there are significant increases in China’s quotas. They also stand to lose their permanent seats on the IMF noard of governors, but pressure for an agreement is mounting.

The voting rights issue will also feature in the IMF summit’s wider debate about global trade imbalances.

Slow-growing, highly indebted, trade deficit countries, including the US and Britain, are trying to persuade major export economies such as China to focus on boosting domestic demand, creating new markets for the laggards.

President Obama may hope the promise of a louder voice at the IMF will help make the case.

Jean-Claude Trichet, the president of the European Central Bank, called this weekend for more balanced trade flows. “We know that these imbalances have been at the roots of the present difficulties,”

Mr Trichet said. “If we don’t correct them, we’ll have the recipe for the next major crisis.

The Istanbul meeting will also see the publication of the IMF’s latest world economic outlook report. A prereleased chapter of the report, which was published last week, was downbeat on the prospects of speedy recovery.

Bank bonuses: Brown goes on the warpath

Laws to prevent a return to the "bad old days" of huge bank bonuses will be introduced within weeks, the Prime Minister said yesterday.

On the first day of the Labour Party conference in Brighton, Gordon Brown announced a new Business and Financial Services Act that will "ban the old bonus systems" and give the Financial Services Authority powers to intervene where banks flout tough new proposals on remuneration. "We are going to clean up the system once and for all," Mr Brown added.

The pledge came after world leaders at the G20 meeting in Pittsburgh agreed to back new global standards for bankers' remuneration and banks' capital ratios.

Mr Brown said that Britain's proposals would be "the toughest action of any country in the world".

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