China is set to leap-frog industrial powers Germany, France and Britain to become the IMF's second or third most-powerful member under plans being discussed to give emerging nations greater influence. The shake-up under discussion by IMF member countries would give many large emerging economies, including Brazil, Russia, India, South Korea and Turkey more voting power at the Fund, according to an IMF document obtained by Reuters.
Emerging market countries like China have become a major driver of world growth at a time when industrial economies are struggling to emerge from the global economic downturn. Bigger voting power would give countries like China greater sway over IMF lending decisions and more influence over global economic policy.
The IMF proposal increases the voting share of emerging nations as part of a plan that would also boost IMF resources to $1 trillion or more. It also lessens the power of large European countries and smaller ones like the Netherlands and Belgium. In three of four scenarios presented by IMF staff to the Fund's board last week, China jumps into third place after the United States and Japan from its current sixth place. In one proposal, China overtakes Japan and moves into second place. The scenarios cover the IMF's 20 largest member countries.
India would go from 11th position to 9, a ranking currently held by Canada. Brazil would go from 14th to 11th. Turkey would leap to 20th place from around 30th. Spain would be the only European country to benefit from the changes with a move from 15th place to 12th. Saudi Arabia would slip in the rankings from the eighth spot to 13th. United States would remain the IMF's most powerful member with 17.67 percent of the overall quota share, effectively giving it veto power at the Fund.
Major economies are pushing for an agreement on the issue at a summit of leaders of the Group of 20 developed and emerging powers in Seoul in November. G20 leaders agreed last year to a shift in quota shares of at least 5 percent to developing countries at the expense of over-represented member countries.
Discussions on the proposal began in earnest at last week's board meeting at which emerging and developing countries pushed for quota increases at the upper end of staff simulations. Quotas determine how much each member country contributes to the IMF and how much a country can borrow. They are based on a complex formula that calculates such things as a country's gross domestic product, foreign exchange reserves and trade.
The IMF staff paper pushes for a doubling of quotas, which it argued would put the IMF "in a strong position to forestall or cope with potential crises in the coming years."
The negotiations on quotas are taking place alongside a separate power struggle over Europe's dominance on the IMF board, the lender's main decision-making body.
In an unprecedented move on August 6, the United States declined to back a resolution that would have maintained European dominance over the 24-member board. Analysts said the move showed frustration by the United States with Europe's reluctance to give some of its power to emerging economies. In reply, Germany suggested that Washington give up its veto power in the IMF as a compromise, a move analysts said would never pass the US Congress because of the United State's significant financial contribution to the IMF.
European officials told Reuters on Monday that the issue of IMF seats would be discussed at an informal meeting of European finance officials early next month. "Everybody has his own interest," one European official said, noting that larger European countries were reluctant to give up their seats and it was up to smaller countries like Belgium and the Netherlands to make way for emerging markets.
Smaller European countries, which argue they are big financial contributors to the IMF, have proposed they rotate the chairs they hold with emerging economies. This could see countries like Turkey hold the seat for a period of time before it is rotated back to a European - in this case Belgium.
The mandate for the current board expires at the end of October and the issue of IMF reforms is set to dominate a meeting of global finance leaders at the IMF and World Bank in Washington on October 8-9. On Friday, Brazil's representative to the IMF board, Paulo Nogueira Batista, accused Europeans of dragging their feet. "Advanced countries talk loftily of shifting power to emerging markets, but we now need more than speeches and noble declarations," he wrote in an opinion piece in the Financial Times. "Real IMF reform is a critical test of these countries' willingness to adapt to a changed world."