IMF goes ahead with reform agenda

The Jakarta Post ,  Jakarta   |  Mon, 09/18/2006 7:53 AM  |  Business

Riyadi Suparno, The Jakarta Post, Singapore

Despite mounting criticism from developing countries and civil society organizations, the International Monetary Fund is moving ahead with internal reforms that would give more voting rights on the body to four fast-growing economies: China, South Korea, Mexico and Turkey.

The IMF's International Monetary and Financial Committee meeting (IMFC) here Sunday unanimously endorsed the reform package tabled by IMF managing director Rodrigo de Rato.

The package includes voting quota realignments to match members's relative positions in the world economy, and would enhance the participation and voice of low-income countries, delegates were told.

""This will be the biggest reform to the governance of the IMF for 60 years,"" IMFC chairman Gordon Brown, said after the meeting.

Under the reform package, the proposed quotas for the four countries would increase by an aggregate of 3.8 billion special drawing units (SDR), or 1.8 percent of the total current quota, to align with their increased weight in the global economy.

Countries are measured based on four variables; gross domestic product, economic openness, variability and foreign exchange reserves. Their voting rights are determined by the size of their economies and how much money they give to the organization.

The reforms will also increase the value of ""basic votes"" for small and developing countries, the common recipients of IMF policies and World Bank loans, to ensure they have more representation. All IMF members receive basic votes, the value which has fallen continuously from 11.3 percent when the body was established in 1945 to just 2 percent today.

The proposal still has to be approved by the IMF Board of Governors on Monday with an 85 percent majority vote.

It is likely the board will approve the reform as 30 rich countries grouped in the OECD control about 65 percent of the total voting rights.

However, the reforms have been criticized by other large developing countries that would not benefit significantly from the new measures, including India, Brazil, Egypt and Argentina.

Disgruntled ministers from these four countries, together with their counterparts from other developing nations in the Group-24, have issued a statement saying: ""... the current package of reforms does not adequately address the fundamental issue of the under-representation of developing and low-income countries as a group.""

The ministers have demand the reforms include a new quota formula that accurately reflects the relative economic size of developing countries in the world economy. This formula should measure GDP using a purchasing power parity method, that expands the GDPs of developing and low-income countries, they said.

G-24 members also demanded the reforms should include at least a tripling in the number of basic votes.

Responding to the countries' concerns, de Rato said the IMF was doing its best to introduce the reforms and was open to any suggests about improving the formula.

Civil society groups have also given a cold shoulder to the proposed reforms.

""The IMF has merely expanded their rich-man's club. A handful of wealthy countries get individual seats on the board while large groups of poor countries are shoehorned into a single chair,"" said Max Lawson, policy adviser at Oxfam International.

""If the IMF wants to restore credibility, then it must stop tinkering around and make fundamental reforms. Otherwise, borrowing countries will keep voting with their feet,"" ActionAid International senior policy advisor Romilly Greenhill said.

IMF chairman Brown, meanwhile, said any reforms to the organization would always be controversial.

""Some people say we have been moving too fast, and some people say we have been moving too slowly. The one thing you cannot say is that there is no change. Change is happening. Reform has been put in place. The purpose of the IMF is changing.

Copyright © 2008 The Jakarta Post - PT Bina Media Tenggara. All Rights Reserved.