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Europe looks set to dig in its heels over demands from emerging economies for a further redistribution of voting power within the IMF, according to comments by the UK and French finance ministers yesterday. The most powerful emerging nations are demanding that 5-6% more of the votes in the Fund, and a greater share of executive board seats, are shifted away from advanced economies.
The argument has become so bitter that the US, which wants votes to be redistributed at the expense of small European nations, has blocked the biennial elections to the board.
The US, the largest Fund shareholder with 16.5%, used its effective veto to torpedo a procedural resolution needed to call elections.
It appears doubtful that the voting will take place before 31 October, when the current board’s mandate expires, and the Fund would then enter a legal limbo for the first time in its history.
An IMF spokesman said Fund staff are “hopeful” the vote will take place in early November. Amar Battacharya, Director of the G24, which has lobbied most aggressively for reform, said a deal would be done this month. “I’m pretty sure they will reach agreement,” he told Emerging Markets.
A senior source in one emerging nation said that the dispute centred on demands by BRIC nations that the aggregate share in the Fund of non-advanced economies, now 39.5% - after a 5% swing in 2008 –rise by a further 5-6%.
“Even then the Fund would be less representative than the World Bank, where this figure is 47.5%”, the source said.
French finance minister Christine Lagarde yesterday denied that Europe was over-represented, saying that it holds 32% of IMF voting quotas – almost identical to its 30% share of world GDP.
“We are discussing a scheme where the Europeans have to give up seats, Europeans have to give up quotas, the Europeans have to put more money on the table, while Europeans have in the main ratified the changes agreed in 2008,” she said. “It feels to me that we are doing our share.”
George Osborne, the British finance minister, said: “I would be the first to accept that Europe is over-represented.” But, he added, “it is not just a European problem. If we are going to have movement on this IMF reform that everyone has to accept that it can’t just be Europe that is making the compromises.
“Everyone has to accept there are compromises and that was accepted at the breakfast meeting of G20 finance ministers [Friday].”
Osborne insisted that reform of Europe’s share of board seats and voting quotas had to be part of a comprehensive deal. “Other countries need to make offers as well and this to be part of a general agreement and European economies are not the only economies that are over represented.”
Officials from emerging economies said that the antagonism was starting to cripple the work of the institution, creating an “awful” atmosphere. One described relationships as “poisonous”.
The IMF said business would continue as normal even if the elections did not take place by 31 October. A spokesman declined to discuss the legal aspects but said that delaying the elections “does not meet the spirit of the articles of association.”