IMF forces Europe to rethink its role
Brussels, September 3 :
Pressure is building on European countries to seriously consider forming a single voice within the IMF after the financial institution decided to give more say to emerging economic powers, experts said.
Advocates of reform have long noted that small European countries like Belgium, the Netherlands and Sweden enjoy a proportionately much bigger say than large developing countries like Brazil, China and India.
Economist Jean Pisani-Ferry, the head of the Brussels-based think-tank BRUEGEL, said that European countries would do better by accepting to pool their votes in the International Monetary Fund (IMF) now, rather than having a more difficult deal forced on them later.
“If the Europeans try to buy time, reform will be imposed on them,” he said, “Instead, they should seize the initiative and try to get a good bargain from the others.” IMF directors recently agreed to overhaul the institution to give more influence to developing countries, reflecting the shifting balance of power in the global economy.
Under the plan, China, South Korea, Turkey and Mexico will see immediate increases in their voting rights as part of a broader two-year long programme of reform, IMF MD said.
Despite its growing stature as a global economic powerhouse, China has less voting power than Belgium and the Netherlands combined. Rato announced a new formula for quotas in Tokyo on Friday, which would be based on the size of a country’s economy and its openness, although the exact parameters have yet to be decided.
The quotas determine how much a member contributes to the Fund, its voting rights and access to financing, which currently totals $28 billion in loans outstanding to 74 countries. “Europe is potentially very strong but it’s divided and in reality has little weight,” a source close to the Belgian central bank said on condition of anonymity. Likewise, Pisani-Ferry said that unlike the US, “Europe stands out for its lack of leadership and its incapacity to take on global responsibility”.
The Belgian source said that pressure on countries to surrender influence had eclipsed the real problem of “how the IMF functions, its board of directors, the power of the G7 and one particular dominating country”, referring to the US.