G20 seals IMF power shift : China, India, Brazil become 'major players' at IMF

Discussion in 'China' started by SHASH2K2, Oct 24, 2010.

  1. SHASH2K2

    SHASH2K2 New Member

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    Emerging economies gain clout as IMF doubles quotas


    Fast-growing emerging economies will get a louder voice at the International Monetary Fund under a landmark agreement clinched on Saturday that reflects a shift in global power from industrial countries. Under the deal, more than 6 per cent of voting power at the Fund will shift to dynamic


    developing countries such as China, which will become the third-biggest member of the 187-strong Washington-based lender, IMF officials said.
    Europe will give up two of the eight or nine seats it controls at any given time on the IMF's Executive Board, which will continue to have 24 members, according to a statement issued after a meeting of finance ministers from the Group of 20 leading economies.

    As part of a wide-ranging package, the G20 also agreed to double the IMF's quotas, which determine how much each of the fund's 187 members contribute to the IMF and how much they may borrow from it.

    The quotas currently total about $340 billion. The IMF staff had argued for a doubling, which it said would put the fund "in a strong position to forestall or cope with potential crises in the coming years".

    The G20 said the reforms would make the Washington-based lender "more effective, credible and legitimate".

    The reduction in Europe's representation is smaller than the United States was seeking.

    However, Washington, which has a 17.67 per cent share of IMF quotas will retain its veto on the Fund's most important decisions. These will continue to require a super-majority vote of 85 per cent, according to IMF officials.

    The governance reforms amount to an overhaul of the global economic order established when the Fund was set up after World War Two, prompting IMF Managing Director Dominique Strauss-Kahn to describe the agreement as historic.

    "This makes for the biggest reform ever in the governance of the institution," he told reporters.

    Horse-trading

    The G20 agreed a year ago to transfer at least 5 per cent of voting rights to developing countries such as India and Brazil whose clout within the Fund has not kept pace with their emergence as major engines of global growth.

    China will leap over Germany, France and Britain in the Fund's power rankings, with its quota share rising to 6.19 per cent from less than 4 per cent. India will be in 8th spot, Russia in 9th and Brazil in 10th, according to the Russian finance ministry.

    Together, the four -- known by the acronym BRICs -- will have 14.18 per cent of IMF quotas and emerging markets as a whole will have 42.29 per cent, the minister said.

    "It was a long-expected reform that is really shifting the balance of power and making space for all economies, including emerging markets," said French Finance Minister Christine Lagarde.

    Thrashing out which smaller European countries will give up their board seats is likely to take months. Belgium and the Netherlands are among the possible losers.

    The fund's current five biggest members -- the United States, Japan, Germany, France and Britain -- not only have their own seats on the IMF board but are allowed to appoint their executive directors.

    Under Saturday's deal, these directors will now have to be elected by the full board.

    China, Russia and Saudi Arabia also have their own seats. The rest of the membership is divided into constituencies, which elect an executive director to vote for the group as a whole.

    An example is the Netherlands, which represents 12 countries on the board. These groups vary in size, interests and distribution in voting power.

    The Gyeongju Accord raises the prospect of more multi-member constituencies, depending on how Europe agrees to reduce its representation.

    There are no set rules governing how countries group together. Individual countries can switch constituencies in search of more influence within a group or to form a more coherent regional alliance.

    One possibility that has been floated would see some Gulf countries forming a constituency with Saudi Arabia.
     
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  3. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    G20 seals IMF power shift; China, India to wield more power

    Your voting power should be based on how much you lend.
     
  4. SHASH2K2

    SHASH2K2 New Member

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    Size and potential of economy should also be a factor and Policies of IMF affect everyone.
     
  5. ajtr

    ajtr Veteran Member Veteran Member

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    G20 seals IMF power shift; China, India to wield more power

    G20 seals IMF power shift; China, India to wield more power


    GYEONGJU (SOUTH KOREA): India will improve its rank by three notches to the 8th position in IMF, as the group of 20 nations (G20) on Saturday decided to increase the quota of emerging markets in the multi-lateral lending agency by over six per cent.

    "Agreement on IMF reforms has been reached. There will be a shift in quota shares to dynamic EMDCs (emerging market developing countries) and to underrepresented countries of over 6 per cent while protecting the voting share of the poorest," finance minister Pranab Mukherjee said here.

    With this, India's rank in International Monetary Fund (IMF) will improve to the 8th position from the current 11th in terms of quota, he told reporters after a meeting of finance ministers of G20 nations.

    "What we have achieved is significant. The quota share (of India in IMF) will improve to about 2.75 per cent (from the present level of 2.44 per cent)," Mukherjee added.

    Similarly, China will see an improvement in its ranking to the third position from the present sixth.

    Quota represents the relative position of members of IMF. It is based on various parameters like country's GDP, openness, forex reserves etc.

    The finance minister said the quota reforms will give legitimacy to the IMF in the new world economic order.

    India and other emerging market economies have been demanding reforms in IMF to give more powers to them in line with their share in the global economy.

    Emerging market economies contribute around 47.5 per cent to the global economy in terms of purchasing power parity, but have only 39.5 per cent share in the IMF.

    Their share will now increase to over 45.5 per cent in the 187-nation body IMF.

    Also, Europe will give up two of the eight or nine seats it controls at any given time on the IMF's Executive Board, which will continue to have 24 members, as per the agreement.

    Now next phase of reforms will start in 2013.

    G20 inks pact to avert trade war

    The Group of 20 major economies also agreed to shun competitive currency devaluations but stopped short of setting targets to reduce trade imbalances that are clouding global growth prospects.

    A closing communique contained no major policy initiative after a US proposal to limit current account imbalances to 4 percent of gross domestic product, a measure aimed squarely at shrinking China's surplus, failed to win broad enough backing.

    Indeed, the United States itself came under fire from Germany and China for the super-loose monetary policy stance it has adopted to try to breathe life into the sluggish US economy.

    German economy minister Rainer Bruederle said he had made clear that easing was the wrong way to go. "An excessive, permanent increase in money is, in my view, an indirect manipulation of the (foreign exchange) rate," he said.

    Heading for Beijing

    The main aim of the two days of talks, which precede a G20 summit in Seoul on Nov. 11-12, was to ease currency strains that some economists feared could escalate into trade wars.

    Developing countries are worried that Washington, by flooding the US banking system with cash, is pumping up their asset prices and exchange rates, thus undermining the competitiveness of the export industries on which they rely for growth.

    China, among others, frets that the US policy stance will debase the dollar, the lynchpin of the global economy.

    In a thinly veiled reference to the United States, the G20 statement said advanced countries, including those with reserve currencies, would be vigilant against excessive volatility and disorderly movements in exchange rates.

    Washington, by contrast, is frustrated over the refusal of China in particular to let its currency rise to a level that reflects its growing economic power and would help reduce its big trade surplus with the United States.

    "If the world is going to be able to grow at a strong, sustainable pace in the future... then we need to work to achieve more balance in the pattern of global growth as we recover from the crisis," US treasury secretary Timothy Geithner said.

    US officials were pleased that the communique committed G20 members to "refrain from competitive devaluations" of their currencies and to pursue a full range of policies to reduce excessive external imbalances.

    Geithner will keep up the pressure on Monday for a stronger yuan when he holds talks in China with Vice-Premier Wang Qishan, who has broad responsibility for economic policy.

    "The content of the G20 statement is generic and broadly in line with expectations, but this should not detract from the fact important progress was made in giving emerging market countries a greater voice in the IMF," said Claudio Piron, a currency strategist at Bank of America Merrill Lynch in Singapore.

    Read more: G20 seals IMF power shift; China, India to wield more power - The Times of India http://timesofindia.indiatimes.com/...e-power/articleshow/6799393.cms#ixzz13EXEMkDT
     
  6. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    The function of IMF is to loan money, it is a big international bank. Your share of it is how much money you loan out. The quota % stated is how much you have to lend to keep your voting %. To increase your clout, you have to get other members to agree so you can loan more money, but get more voting rights. What I am saying, if you want to loan out an arse load of money more than other countries want, you should be able to and claim bigger voting rights for yourself without a consensus from other members. The system as it stands is limiting loans.
     
  7. SHASH2K2

    SHASH2K2 New Member

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    I understand your concern but people who avail maximum amount of loans from A bank should also have a say in Banks policy. Being a big customer of Bank Countries like India should definitely have a say in their policies.
     
  8. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    The policy is determined by consensus of the quota holding members, countries that "avail" themselves of IMF loans do not have a say as they have no quota. They are the ones taking the loans. Should Pakistan have a say in what the terms are of the agreement? If they don't like it, they don't have to take the money. They have no right to dictate terms when they are the ones who screwed up. Now India will have a bigger say in what the terms are for Pakistan to keep getting their loan tranche. The whole point of the IMF is to take the successful economies to guide the economies that have failed at running theirs. If failed states can dictate to the IMF the terms of their loans, then they will never fix what went wrong in the first place.
     
  9. badguy2000

    badguy2000 Respected Member Senior Member

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    if IMF were not to increase Chinese votes, CHina would simply marginalize IMF by providing cheap easy loans and drive IMF out of the market of aid to 3rd world.
     
  10. SHASH2K2

    SHASH2K2 New Member

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    If that is the case there are several ways to Marginalize your so called Chinese monetary fund as well. One has to play by rules but who am I talking to about playing by rule?
     
  11. badguy2000

    badguy2000 Respected Member Senior Member

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    frankly speaking, Chinese has more dollars than the rest of G19 combined.
     
  12. SHASH2K2

    SHASH2K2 New Member

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    you claim that you work in a bank . I assume you should be good with the numbers. I would love it if you can provide some data along with your claim . Even a layman will question your Claim .
     
  13. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    China has more DEBT than dollars , there is a big difference holding Bonds and treasury than holding cash, any banker would know this.

    http://news.yahoo.com/s/afp/20101018/pl_afp/useconomyfinancebondschina
    China raises US debt holdings

    China, excluding Hong Kong, remained by far the biggest holder of Treasury bonds and notes: 868.4 billion dollars' worth, reflecting an increase of 21.7 billion dollars from July, the Treasury Department reported.
     
    Last edited: Oct 28, 2010
  14. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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    China, India, Brazil become 'major players' at IMF

    http://www.google.com/hostednews/ap...q2I6Yw?docId=df88b0b5c5854f3ebe68e7e50dac7e9a

    WASHINGTON (AP) — China and India received long-sought recognition Friday as global economic heavyweights as the International Monetary Fund gave them and other emerging powers a significantly larger role in stabilizing the world economy.

    IMF chief Dominique Strauss-Kahn announced planned reforms to the fund's voting power after a meeting of the organization's board, declaring that no longer would emerging economies feel that they are "invited to the table, but minor players."

    Brazil, China, India and Russia are now "major players," Strauss-Kahn affirmed at a news conference. He called on these nations to assume greater responsibility in guiding the global economy.

    The board's decision elevates China to No. 3 in voting power above traditional IMF powers such as Germany, Britain and France. A number of smaller European nations and oil-producing countries such as Saudi Arabia lost votes so that "new changes in the global economy will now be reflected in changes in the fund," according to Strauss-Kahn.

    Developing countries have long criticized the voting system of the IMF, which was established after World War II to stave off a reprise of the Great Depression. The United States and Japan maintain the two most voting shares, but two European seats on the 24-member executive board will now be reserved for emerging economies.

    The overhaul was called for when world powers met last year in Pittsburgh in an effort to revive global growth after the collapse of financial markets. The so-called Group of 20 nations will meet again next week in Seoul, South Korea.

    Strauss-Kahn called the changes the "most fundamental governance overhaul in the fund's 65-year history, and the biggest ever shift of influence in favor of emerging markets and developing countries to recognize their growing role in the global economy."

    The reform also encompasses the governing board's membership, expanding its top tier from five to 10.

    Currently, there are five countries that essentially make up this group in the IMF's 24-member executive board as they are always represented: the U.S., Japan, Britain, France and Germany. The group will be expanded to 10 with the addition of China, India, Brazil, Italy and Russia.

    The IMF's full membership of 187 countries must also agree on the changes. Some countries may need legislative approval.

    Poorer nations have attacked the IMF's voting arrangement for giving too much weight to the United States and its allies in Europe, noting the traditional power-sharing arrangement that put a European at the head of the IMF and an American atop the World Bank, its sister institution.

    China and others have long sought to challenge the U.S.-European understanding. Strauss-Kahn's term runs until 2012, the same year presidential elections are scheduled in his native France. A Socialist candidate defeated in the primaries in 2007, he is widely tipped to run again.

    IMF officials say the reform essentially resolves any problems it has with a "democratic deficit."

    Emerging countries were recognized for the size of their economies and for their impressive growth figures. Their economies are expanding sometimes two to three times faster than the U.S., Japan and Europe. Their debt ratios are falling much quicker as well.

    The reforms represent a shift of about 6 percent of the IMF's share assessments from the traditional Western powers to developing nations.

    Still, there have been critics of the proposed changes. Aid agency Oxfam has called the voting power shift insufficient and notes that the Philippines has less weight than Luxembourg despite having 200 times more people. Others have criticized the effort as an attempt to paste over the harsh consequences of IMF austerity policies in nations such as Ethiopia and Latvia.

    Considering the impressive growth of emerging nations, Strauss-Kahn said he expected their power to increase again in 2014 when the IMF is scheduled to reassess voting rights.
     
  15. SHASH2K2

    SHASH2K2 New Member

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  16. no smoking

    no smoking Senior Member Senior Member

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    Please indicate how to marginalize chinese loan?

    I can see the only way is to provide even cheaper loan to those 3rd world countries than chinese.

    The question is: can any country or organization do that? How they get their profit from such a deal?

    Remember, china is trying to get profit from the commercial contract attached to these loans.
     

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