Washington, Oct 13, 2010 (Calcutta Tube) Despite a hard push by India, world financial leaders have failed to make progress on reforms in International Monetary Fund (IMF) to give emerging economies a greater say over the global economic governance.
At the end of IMF-World Bank annual meetings here Saturday, Dominique Strauss Kahn, IMF managing director, claimed there had been movement towards agreement on reform of the Fund to increase the voting power of emerging nations to reflect their increasing economic clout.
‘I’d say agreement will be found in the coming weeks,’ he said, but admitted some large hurdles still needed to be crossed on the increase in voting share of emerging economies’ representation on the IMF board and the selection of future managing directors.
‘There is only one obstacle, which is the agreement of the members,’ he said acknowledging that the communique issued by the Fund’s governing body was short on substance. ‘The language is ineffective,’ he said, adding ‘policy has to be adapted’.
‘The most divisive issue is who pays for even the modest shift’ in quotas of at least 5 per cent to dynamic emerging markets and developing countries,’ said Finance Minister Pranab Mukherjee calling ‘on the advanced countries to be more pragmatic and share a greater part of the burden of the shift.’
Essentially papering over differences, the finance leaders, however, gave a call ‘to avoid all forms of protectionist measures’ as conditions in the world economy remained ‘fragile and uneven’ and pledged to work ‘cooperatively’ to resolve tensions over currencies and trade imbalances.
‘We stress the importance of the revival of world trade and investment in underpinning global economic recovery and growth,’ the communique said noting ‘Developing economies will play an increasing role in global growth and trade.’
In the midst of a ‘currency war,’ over mounting trade deficits in countries like the US and the UK and surpluses in countries like China and Germany, the IMF sought to play referee between the richest countries and emerging market economies over whose currencies should bear the weight of the global recovery.
The Fund’s governing body said that the IMF should ‘deepen its role’ on volatile capital flows and exchange-rate movements.
‘Given that these issues are critically important for the effective operation of the global economy and the stability of the international monetary system, we call on the IMF to deepen its work in these areas, including in-depth studies to help increase the effectiveness of policies to manage capital flows,’ the leaders said in a communique.
Amid tensions between developed countries and their emerging counterparts over how to get out of the global recession, US Treasury Secretary Timothy Geithner has linked the issue of a greater IMF role for China to it boosting the value of its currency, Yuan.
‘The IMF is the place to deal with these issues,’ said Youssef Boutros-Ghali, Egypt’s finance minister and chair of the International Monetary and Financial Committee, at a press conference following the meeting.
Strauss-Kahn told reporters he planned to personally attend the IMF’s annual talks with economic officials from the top five global economies and would act as a judge and referee focusing on whether their domestic policies would spill over into the global economy in a harmful way.
But the China issue prevented action on the issue of IMF board representation until at least the Group of 20 summit in November in Seoul.
(Arun Kumar can be contacted at email@example.com)