Sunday, October 08, 2006

IMF Reform: EU Countries Only Willing to Give Up “Limited” Voting Power

Source: EU Calls for "Limited" Shift in IMF Votes, Draft Statement Says

During the International Monetary Fund (the “IMF” or the “Fund”) meetings in Singapore last month, IMF member countries agreed increase voting rights of emerging countries to match their increased clout in the global financial industry. These countries include China, Turkey, Mexico, and South Korea. This change was meant to be a temporary solution until a broader redistribution of voting rights could be decided upon.

The broader measures being discussed involve reducing the voting power of some European Union (EU) nations, while giving more voting power to other emerging countries. Although the EU nations agree with the temporary solution, they are resisting broader redistributions.

Outlining its stance on the IMF reforms, the EU released a draft statement on October 5. EU counties are only willing to cede a “limited” number of voting shares, making it clear that IMF Managing Director, Rodrigo de Rato, will face an “uphill struggle” in this endeavor. Ted Truman, a former U.S. Treasury assistant secretary and now a scholar specializing in the IMF at the Institute for International Economics in Washington, says that “it is clear that Europe is not embracing this process with enthusiasm.”

EU nations call for only incremental voting changes in the IMF. “Once a new quota formula has been agreed, a second round of limited, ad hoc quota increases must take place to adjust the situation of the most under-represented members,” says the draft statement. It adds that “EU members must be treated equally with other under- represented members.”

Currently, the EU nations have 23 percent of the votes in the Fund, more than the 15 percent required to block any decision. Additionally, EU countries have one-third of the 24 seats on the Fund’s executive board, while the U.S. and Japan, the world’s largest economies, have just one member each.


1. Should the EU be treated as one economic entity when planning the broad voting distributions in the fund, or should each country in the EU be treated independently?

2. If the Fund treats the EU as one entity, how much of a decrease should EU voting power face? Should the EU lose seats on the Fund’s executive board?

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