Article

Reform at the IMF: Asia Wants More Say at the Fund

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
April 2006
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Recent discussions about reforming the IMF have usually included the issue of governance of the institution. This refers partly to whether member countries’ representation in the IMF’s decision making is fair and commensurate with their standing in the global economy—and partly to such issues as the selection of IMF management. With regard to representation, there is little disagreement that some countries are currently underrepresented because their quotas understate their economic size.

Voice and representation

Speaking at the Bank of Mexico, Rodrigo de Rato recognized “the need for increases in voting power for some countries … to ensure that they have a role in the Fund’s decision-making process that accords with their increased importance in the world economy.” He anticipated that proposals for reforming IMF voting rights would be presented at the IMF’s Annual Meeting in Singapore in September 2006.

The finance ministers of Korea and other Asian members, including Japan, China, and Thailand, have called for a fairer distribution of IMF quotas to boost the voting strength of Asian members. The current quota distribution, in the words of Japan’s Finance Minister Sadakazu Tanigaki, is “another form of unsustainable global imbalance.” Korea, Japan, China, and the 10 members of the ASEAN together accounted for 19 percent of world GDP in 2004 but have only a combined 13 percent voting stake in the IMF.

How many seats?

There is little disagreement that Asia is underrepresented, and some critics think that Europe is overrepresented, on the IMF’s 24-member Executive Board.

Representation by industrial and

developing country groupings:
Chairs on

Executive Board1
Voting

power2
G5539.1
United States117.1
Japan16.1
Germany16.0
France15.0
United Kingdom15.0
Other G10+Switzerland624.2
Europe520.5
Western Hemisphere13.7
G24924.6
Africa24.4
Asia25.7
Middle East25.7
Western Hemisphere38.7
Other412.1
China12.9
Russia12.7
Saudi Arabia13.2
Other Asia13.3
Note: G5 = Group of Five leading industrial countries; G10 = Group of Ten industrial countries; and G24 = Group of 24 developing countries.

Constituencies of Executive Directors may include members outside of grouping.

Voting power of the chairs representing the constituencies.

Note: G5 = Group of Five leading industrial countries; G10 = Group of Ten industrial countries; and G24 = Group of 24 developing countries.

Constituencies of Executive Directors may include members outside of grouping.

Voting power of the chairs representing the constituencies.

Timothy Adams has also backed an increase of Asian countries’ quotas and their voting weight. Moreover, he has argued that the euro area could be represented by one seat on the Executive Board, thus helping increase the relative voice of emerging market and developing country members on the Board. As for the voice of the developing countries, Tito Mboweni, Governor of the Reserve Bank of South Africa, has called it an embarrassment. Speaking at the University of Pretoria in February, he said that the IMF and other international financial institutions should be radically reformed to give developing countries a greater voice in decision making. “If we are going to participate in these institutions, we must participate as equals.”

But Lorenzo Bini Smaghi, the European Central Bank executive board member responsible for international affairs, called Europe’s position in the IMF paradoxical. All non-European countries think that the European Union (EU) and the euro area are overrepresented and that their weight should be reduced, he said. But the EU and euro area countries—which hold 25–34 percent of votes—think that their influence is not comparable to that of the United States, with 17 percent of the votes.

The IIE’s Edwin Truman said, “It is not sustainable that the policies of the IMF are determined principally by the votes of those countries that no longer need to borrow from the Fund when other countries, which may need to borrow from the institution, are positioned to provide financial support to its lending activities and should have more say over policies affecting those activities.”

Selection of Managing Director

Another governance issue is the selection process for the IMF’s Managing Director and Deputy Managing Directors. The Managing Director has traditionally been European, and the World Bank President has traditionally been an American. Critics call for an open and competitive process in which the pool of candidates is open to all nationalities. Truman says that failure to reform this process could “undermine the legitimacy of the Bretton Woods institutions.”

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