Boost for role of major Asian economies in the IMF

Boost for role of major Asian economies in the IMF

TOKYO - Governance reforms enhancing the "voice and votes" of China and India, among other emerging economies within the International Monetary Fund have begun to take effect this week, while the IMF's capital base is also being beefed up significantly.

This follows last month's landmark agreement under which the US Congress finally ratified an agreement reached in 2010 by the IMF Board of Governors but which has not been implemented until now because of Congressional delays.

Under the agreement, the "quotas" or shares of permanent capital of each of the IMF's 188 members will increase to a combined total of 477 billion Special Drawing Rights or SDRs - around US$660 billion - from about 238.5 billion SDRs at present.

Without ratification of the 2010 reforms by the required 85 per cent of the membership - the US holds slightly over 15 per cent - the IMF has been forced to rely on borrowed funds to supplement its permanent capital up to now.

"I commend members for ratifying these truly historic reforms," said IMF managing director Christine Lagarde who is expected to be appointed for a second five-year term of office with effect from July this year

They "will ensure that the Fund is able to better meet and represent the needs of its members in a rapidly changing global environment", she added.

Asian support for the IMF was eroded badly after the 1997 Asian financial crisis, during which policy advice and loan conditionality applied by the Washington-based institution came in for strong criticism in parts of the region.

At that time, Japan proposed the formation of an Asian Monetary Fund or AMF. The idea never got off the ground, owing mainly to US opposition but a watered down version later came into being in the shape of what is known as the multilateral Chiang Mai Agreement

Apart from doubling the size of the IMF's permanent capital base the reforms introduce what some term increased "democracy" into the ownership and governance of the IMF, which was founded around the end of World War II.

The moves "represent a major step towards better reflecting in the institution's governance structure the increasing role of dynamic emerging market and developing countries", the IMF said in a statement.

They "will reinforce the credibility, effectiveness, and legitimacy of the IMF".

For the first time, four emerging market countries (Brazil, China, India, and Russia) will be among the 10 largest members of the IMF.

Other top 10 members include the United States, Japan and the four largest European countries (France, Germany, Italy and the United Kingdom).

"More than 6 per cent of quota shares will shift to dynamic emerging market and developing countries and also from over-represented to under-represented IMF members," the statement noted.

Meanwhile, "the quota shares and voting power of the IMF's poorest member countries will be protected".

Also, for the first time, the IMF's executive board will consist entirely of elected executive directors, ending the category of appointed executive directors (Currently the members with the five largest quotas appoint an executive director.)

This article was first published on Jan 29, 2016.
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