U.S. adopts landmark decision that will subtract power to Europe in the IMF
| Date: August 20, 2010 | Source: REUTERS |
| Category: Economy | |
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Loading ... The United States took an unprecedented decision in the International Monetary Fund to try to force Europe to yield some of its power on the executive board of the IMF for emerging economies.
United States, frustrated by the refusal of Europe to share more power, declined this month to support a resolution that would have kept the European dominance in the council of 24 members, diplomats told Reuters several members of the fund.
Washington has been trying for a long time, and unsuccessfully, to reduce the number of seats on the IMF board to 20 from 24 as part of a comprehensive reform that would give developing economic powers a greater say in the decisions of the fund, reflecting its growing global influence.
Europe has hindered the idea of giving one of nine seats is currently on the board. Emerging economies such as Turkey have expressed interest in a seat.
European countries and United States dominate the IMF in a reflection of the postwar world order, which is being threatened by the advance of nations like China.
The council is a major decision making bodies of multilateral lending agency. Has approved billions of dollars in emergency loans to countries hit by the global financial crisis and oversees the way it administers the fund.
Domenico Lombardi, former director of the IMF's board, said the U.S. decision, in the August 6th meeting of the IMF board, reflected the frustrations with Europe not only by the issue of governance of the fund but by broader economic matters.
These issues include differences about new liquidity rules for global banks and the European emphasis on austerity measures as Washington reiterates the need to ensure economic recovery before tightening the belt.
United States had not shown his muscles so openly before.
"It is an aggressive measure generated by a strong sense of frustration at what the U.S. sees as a failure of Europe to speed up the process of reforming the IMF," said Lombardi, president of the Oxford Institute for Economic Policy and member of the Brookings Institution in Washington.
A senior U.S. Treasury official said the election of the executive board of the IMF was an opportunity to explore ways to change the composition and make it more representative.
"Secretary (Timothy) Geithner supports reform of the IMF executive board to better reflect the reality of today's global economy and ensure that the representation of emerging market countries and developing stronger," said the official Treasury.
After the surprise U.S. action, the ball is now in the European side, where discussions will probably finance ministers at their next meeting, officials said.
EUROPEAN DIVISIONS
European officials have hinted that they are willing to change in the representation of Europe in the IMF, but there is no unanimity on how to do.
Germany, France and Britain have their own seats. Other European nations like Belgium, Holland, Spain, Italy, Denmark and Switzerland represent a constituency of nations, including many emerging economies.
A spokesman for the German finance minister, Wolfgang Schaeuble, said the board should continue to have 24 seats.
A senior European Commission official said it made sense that euro area members have a single chair at the IMF, given the recent collaboration between the member states of the euro zone to avoid a sovereign debt crisis with a rescue package 1 trillion dollars.
"But for that we need to show commitment to our member states and to support our position, otherwise it will be very difficult. It will be more difficult after the U.S. play? Is it easier? I hope so," he added.
African representatives are calling for heads of state to resolve the issue. They fear losing the two seats of Africa if Europe refuses to give ground.
"The risk is that poor countries, low-income Africa and some emerging markets are excluded from representation," an African official.
The Group of 20 economic powers and is asking about how to distribute voting power among members of the fund, a parallel debate the size and composition of the board.
As a result of these negotiations, China could overtake France and Britain, standing behind the United States, Japan and Germany.
Lombardi said the U.S. attempt to reduce the number of seats in the hands of Europe seemed to point to the major European countries but that would mean that smaller states like Belgium and the Scandinavian nations have to make way first.
"I would hope that the Europeans put something on the table (...) may lose one or two seats, and there arises a gradual plan that aspires to a more rational consolidation of European chairs," he added.
"They're going to have to put something on the table to sound credible because there is no way that they will keep eight or nine seats if the U.S. does not support this resolution," said Lombardi.
"It's a complicated game for the Europeans who would not want to be the African chairs to remove the directory because they will not cooperate," he said.
