Europe has opened the door to ceding some power to emerging economies at the International Monetary Fund, in a key gesture ahead of a summit with Asian giants and a crunch IMF meeting.
European Union finance ministers agreed to hold talks with the United States and other IMF partners on reviewing EU representation at the international lender, which both Washington and emerging powers criticise as being disproportionate.
Belgian finance minister Didier Reynders, whose country holds the 27-nation EU's rotating presidency, said the bloc was ready to discuss the quota system that determines voting strength and the number of board seats. He spoke three days before a summit of Asian and European leaders in Brussels and ahead of the annual IMF meeting on October 8-10. If the United States agrees to a swing of five percent in these quotas, favouring advanced emerging economies such as China or India, then Europe will consider rotating two of the nine seats it holds on the 24-seat IMF board with emerging countries.
Reynders indicated the concession would only be negotiated if Washington dropped a demand to return the board to its statutory 20 seats by November 1. The United States would also have to relinquish its ability to block majority decisions taken by old and new partners. EU ministers agreed "to try to start discussions with the partners in the IMF, first maybe the US but also other partners, to see how it is possible to organise a quota revision," Reynders said
"In 2010 we want to organise a shift of five percent in the quotas to emerging and under-represented markets," he said, stressing that the number of board seats would only be looked at "after" quotas are revised. Non-governmental organisations criticised the European proposal because it fell short of completely ceding seats to emerging powers. "It's time developing countries had a say about the way the global economy is run," said Pamela Gomez, spokeswoman for aid group Oxfam.
"It's outrageous that current IMF quotas give Luxembourg more voting weight than the Philippines, which has almost 200 times the population," she said. The extra four IMF seats, allocated to Argentina, Brazil, India and Rwanda, would have to be cut back if no diplomatic deal on representation were agreed before its new, two-year board is selected by November 1. Striking a deal with the United States will prove difficult because Washington, which controls 16.7 percent of votes, can block a required majority for action of 85 percent.
The United States has made it clear it does not intend to give up on this privilege. In April, US Treasury Secretary Timothy Geithner came out publicly with a call for Europe to give up berths, a stance followed in June by the IMF's French managing director, Dominique Strauss-Kahn. Friday's EU gesture came ahead of a 48-nation Asia-Europe Meeting on Monday and Tuesday, which includes Russia and Australia, and separate summits with Chinese and South Korean leaders on Wednesday.
IMF representation, trade and European concerns over foreign exchange rates are expected to figure prominently at the gatherings. In a draft declaration obtained by AFP, ASEM countries stated their "ambition to modernise the governance of the IMF, to improve its credibility, legitimacy and effectiveness." But the text makes no mention of the thorny issue of foreign currency exchange despite US and European charges that China deliberately undervalues the yuan to boost its exports.
A senior EU diplomat warned this month that a "genuine willingness" to give up votes in the IMF would only materialise if China shows "responsibility" on currency protection. The draft declaration says ASEM partners must "play a part in addressing economic distortions and weaknesses in policy responses."
* AFP
