By Omoh Gabriel, Business Editor
The Board of Governors of the International Monetary Fund (IMF) Monday adopted a Resolution on Quota and Voice Reform in the IMF. Members representing 90.6 per cent of the total voting power cast votes in favor of the Resolution. Votes of Governors exercising 85 per cent of the total voting power were required for adopting the Resolution.
Finance Minister Mrs Esther Nenadi Usman had pressed for an increased Africa voice and representation at the World Financial body prior to the voting. She presented the position of Africa Group 1Ministers of Finance at the meeting. The presentation made were based on issues that were previously discussed in Mupota. In her presentation to the IMFC committee on behalf of the group, she had expressed concern that the robustness in global growth has been accompanied by many downside risks. Among the risk she said are intensified inflationary pressure, higher oil prices, global imbalances and cooling of housing markets in a number of industrial countries. Besides she said a greater potential for adoption of increased protectionist measures and more trade distortions exist in the wake of the breakdown of the Doha round of trade negotiations. In her presentation she had said that the impact of higher global oil prices has been disruptive, but well absorbed by the market partly reflecting the growing global demand for oil, as well as relatively well anchored high oil price and inflationary expectations. This situation she told the IMF Board of Governors is proving more intractable to manage and could be unsustainable in the medium to long term. She told the Board that net oil importing countries especially those in sub Sahara Africa are experiencing increasing difficulty in managing balance of payments problem as well as fiscal pressures associated with high oil prices.
She had raised the issue of the significant tightening of financial market conditions by developed economies. Of particular concern she said is the fact that they appear to occur partly as a result of a rise in inflationary expectations and not merely from a more gradual adjustment in savings and investment behaviour. This action she said could adversely affect emerging economies as it could lead to cost of borrowing in low income countries and dampening effect on investment, growth, poverty reduction and on efforts aimed at meeting the MDGS.
The Resolution, which had been recommended by the IMF’s Executive Board to the IMF Board of Governors, is a package of reforms on quotas and voice in the IMF. These reforms aim to better align the IMF’s quota shares with members’ relative positions in the world economy and to make it more responsive to changes to the global economy while, and equally important, enhancing the participation and voice of low-income countries in the IMF.
The two-year reform program includes as a first step ad hoc quota increases for a group of the most clearly under represented countries, China, Korea, Mexico and Turkey. The Resolution further requests that by the Annual Meetings in 2007, the IMF Executive Board reach agreement on a new quota formula to guide the assessment of the adequacy of members’ quotas in the IMF.
Such a formula should provide a simpler and more transparent means of capturing members’ relative positions in the world economy. The new quota formula will provide the basis for a further rebalancing of quotas to be recommended to the Board of Governors by the Annual Meetings in 2007 and no later than by the Annual Meetings in 2008.
The Executive Board was also requested to propose an amendment of the IMF’s Articles of Agreement to provide for at least a doubling of the basic votes that each member possesses, so as to protect the voting power of low-income countries as a group; and it is envisaged that the amendment should also safeguard the proportion of basic votes in total voting power.
The Resolution also calls on the Executive Board to act expeditiously to increase the staffing resources available to those Executive Directors elected by a large number of members whose workload is particularly heavy. Further, the Executive Board will give consideration to the merits of an amendment of the Articles that would enable each Executive Director elected by a large number of members to appoint more than one Alternate Executive Director.
It is also envisaged that the Board of Governors will consider distributing any increase in quotas with a view to achieving better alignment of members’ quota share with their relative positions in the world economy, while ensuring that the IMF has adequate liquidity to achieve its purposes.
In his speech to the 2006 Boards of Governors of the IMF and the World Bank Group Tuesday in Singapore’s Suntec Convention Centre, Managing Director Rodrigo de Rato said
“I am delighted to tell you that Governors have voted overwhelmingly in support of the reforms.
“These reforms are the first step in a process that will increase the representation of many emerging market countries to reflect their increased weight in the global economy. Right away, they will increase the voting power of four countries‚ÄîChina, Korea, Mexico, and Turkey‚Äîthat are most clearly under represented. Equally important, Governors have agreed that we must strengthen the voice and representation of low-income countries that continue to borrow from the Fund but have only a limited share in Fund voting.
“These governance reforms are tremendously important for the future of our institution. They will enhance our effectiveness and add legitimacy to all of the other reforms that we are implementing. Their passage is a tribute to the hard work of the staff and the Board, and to your vision in recognizing that preparing the Fund for the future is in every country’s interests. We will implement the agreed package over the next two years. There is much work to do, but this vote is a great start. It shows that the spirit of international cooperation is alive and well at the Fund.”
The Managing Director’s speech also outlined the key points of the IMF’s Medium-Term Strategy, including strengthening economic surveillance and measures to prevent crises, especially in emerging markets, and will touch on key challenges facing the global economy, including a disorderly unwinding of global imbalances and risks from potential trade protectionism without a resumption of Doha Round negotiations. The Managing Director also pointed to the IMF’s role in low-income countries, particularly in the context of countries that have received substantial aid flows and debt relief.
