* Emerging powers seek to extract concessions on vote
reforms
* Hold off on announcing IMF funds until June
* Pressure on U.S. to ratify 2010 IMF voting changes
By Lesley Wroughton
WASHINGTON, April 22 (Reuters) – Fresh from a big victory in
raising $430 billion for the International Monetary Fund,
Christine Lagarde’s tougher test as head of the global lender
will be finding a way to give emerging economies more influence.
To do this, the former French finance minister will need to
convince the Fund’s dominant powers – the United States and
Europe – to sign off on voting reforms agreed in 2010 and accept
further changes by January 2014.
When Lagarde passed around the hat among finance ministers
last week to raise funds to contain the euro zone’s debt crisis,
China, India, Brazil and Russia said they would be part of the
effort but chose not to announce each of their contributions
until a June summit of the Group of 20 leading economies.
Europe may have to yield something in return.
The crisis in Europe and a fragile recovery from recession
in the United States has hastened the shift in world economic
power towards the emerging markets, and they want their growing
heft to be reflected in finance institutions like the IMF.
Brazil, the most outspoken of the big emerging economies,
said the release of the money depended on winning firm
commitments on more IMF voting power, although India’s finance
minister, Pranad Mukherjee, denied any link. He said other
emerging heavyweights Russia and China would need time simply to
get authorization in their capitals for providing the money.
Domenico Lombardi, a fellow at the Brookings Institution in
Washington who follows the issue closely, said the decision to
withhold announcing their funding for now gave emerging
economies room to extract concessions on increased voting power
in the months ahead.
“The delay provides a bargaining chip for these countries to
strengthen their negotiation position on the next quota round
(of negotiations) that has just started,” he said.
“The BRICS have learnt that in order to be effective they
need to act preemptively,” he said, referring to the four
emerging heavyweights plus South Africa. “Bargaining on the
extra resources provides a valuable tool to further escalate the
negotiation.”
WAITING FOR REFORMS AND PUSHING FOR MORE
On Saturday, the IMF’s governing panel called for the 2010
voting reforms to be ratified “expeditiously.” But emerging
countries say those changes do not go far enough and bolder
steps are needed. A fresh set of negotiations has already begun.
Their frustrations have grown in recent months with the
likelihood that the Obama administration will not seek needed
congressional approval of the 2010 reforms before the U.S.
presidential election in November.
Although it is Europe that stands to lose power at the IMF
under the reforms, the Obama administration is reluctant to put
the plan to Congress because Republicans might try to score
pre-election points by opposing an increased U.S. financial
contribution to the IMF, which is part of the shake-up.
The reforms, which were supposed to be completed by the next
meeting of global finance chiefs in October, would make China
the third-largest IMF voting member.
To keep faith with the emerging nations, Lagarde, who took
over as IMF managing director in July, will need to be seen to
be pressing the United States to pass the reforms.
She will also need to make sure Europe sticks with a
commitment to reduce its over-representation on the IMF board by
giving up two of the eight seats it currently holds, and hand
them to emerging and developing countries.
Europe’s dominance of the board has become a particularly
sensitive issue because the IMF has been called upon to lend to
crisis-struck euro zone nations. In addition, the Fund has
always been run by a European.
“I take reforms one step at a time,” Lagarde told reporters
on Saturday. “Everybody wants to have a bigger share of the same
pie, so there will have to be give and take.”
Emerging economies have won assurances from G20 partners
that they will be rewarded over time with more IMF voting power
via an increase in their so-called membership quotas, an issue
that is central to keeping them engaged in the IMF.
But demands for more influence go beyond voting power.
China is keen to see its currency, the renminbi, become part
of the IMF’s basket of international currencies, which is used
as a reserve asset by central banks. Africa is demanding a third
seat on the IMF’s 24-member board.
The battle over the next round of voting reforms begins with
the elaborate formula for setting the quotas that determine each
nation’s voting share, how much it must contribute to the Fund
and how much it can borrow. The formula takes into account the
size of each economy, foreign-exchange reserves and trade.
The current formula fails to capture the massive changes
that have taken place globally since the IMF was founded after
World War Two, especially the rise of emerging economic powers.
Now that emerging markets are being asked to bulk up the Fund’s
coffers to battle a crisis centered in Europe, their leverage to
push for more change has increased.
“Our demands are mostly for reforms, and those reforms are
always finding obstacles,” said Brazilian Finance Minister Guido
Mantega. “It’s very easy for the Europeans to get the money and
not do any reforms.”
(Reporting by Lesley Wroughton; Editing by Tim Ahmann, William
Schomberg and David Brunnstrom)
