G20 summit agrees to reform IMF

BBC Online brings news of a slight re-balancing within world economic governance—towards emerging economies—at the G20 Summit currently being held in South Korea: [link]

Finance ministers from the G20 leading economies have agreed reforms of the International Monetary Fund, giving major developing nations more of a say.

At a meeting in South Korea, they agreed a shift of about 6% of the votes in the IMF towards some of the fast-growing developing countries.

Those nations will also have more seats on the IMF's Board, while Western Europe will lose two seats. But the US will retain the veto it has over key decisions.

Such decisions require an 85% vote - Washington holds 17% under the IMF's weighted voting system.

The Guardian has more [link]:

Fast-growing emerging economies will get more clout at the International Monetary Fund under a landmark agreement clinched on Saturday that reflects a shift in global power from industrial countries.

Under the deal, more than 6 percent of voting shares at the Fund will shift to dynamic developing countries such as China, which will become the third-biggest member of the 187-strong Washington-based lender. Europe will give up two of the eight or nine seats it controls at any given time on the IMF's Executive Board, which will continue to have 24 members, according to a statement issued after a meeting of finance ministers from the Group of 20 leading economies.

As part of a wide-ranging package, the G20 also agreed to double the IMF's quotas, which determine how much each country contributes to the IMF and how much it may borrow from it. The quotas currently total about $340 billion. The IMF staff had argued for a doubling, which it said would put the fund "in a strong position to forestall or cope with potential crises in the coming years".

The G20 said the reforms would make the Washington-based lender "more effective, credible and legitimate". The governance reforms amount to an overhaul of the global economic order established when the Fund was set up after World War Two, prompting IMF Managing Director Dominique Strauss-Kahn to describe the agreement as historic. "This makes for the biggest reform ever in the governance of the institution," he told reporters.

The reduction in Europe's representation is less than the United States was seeking. However, Washington, which has a 17.67 percent share of IMF quotas will retain its veto on the Fund's most important decisions. These will continue to require a super-majority vote of 85 percent, according to IMF officials.

Without doubt, today's news represents an important update on World Governance (Unit 3) - should a question on the International Monetary Fund come up in the exams, this development would form a valuable current example!