World Economic Powers Approve IMF Reform
WASHINGTON (AP) - Economic powers gave the world's financial firefighter, the International Monetary Fund, the green light Saturday to remake the 61-year-old institution so it can better prevent and cope with crises.
The strategy was embraced by the IMF's steering committee during the weekend meetings of the 184-nation IMF and World Bank.
"We resolve to make the IMF more fit for purpose in a global economy and more able to address challenges that are quite different from those of 1945 when the IMF was created," said Gordon Brown, Britain's chancellor of the exchequer.
"Specifically, we agreed the IMF must focus more on crisis prevention as well as crisis resolution," said Brown, chairman of the IMF's policy-setting panel.
Officials have time for soul-searching about the task because the economy generally is in good shape, despite soaring oil prices and lopsided trade and investment among countries.
Those risks and a reconfigured IMF played prominent roles in Friday's discussions among the world's most industrialized countries, or the Group of Seven: the United States, Japan, Germany, France, Britain, Italy and Canada.
The IMF's chief, Rodrigo Rato, who wants to sharpen the fund's focus, was pleased with the finance officials' endorsement. One suggested change would mean stronger policing of countries' exchange-rate practices and expanding the IMF's monitoring to emerging powers such Asia.
That is of keen importance to the United States, which has a record $202 billion trade deficit with China. The Bush administration long has prodded Beijing to let its currency float more freely with market forces.
U.S. manufacturers say China is keeping its currency artificially low, making Chinese goods cheaper in the United States and U.S.-made goods more expensive in China. American manufacturers say the current system has hurt exports from the U.S. and contributed to the loss of U.S. factory jobs.
Zhou Xiaochuan, chief of China's central bank, outlined his country's efforts to move toward a more flexible currency policy. He warned that the IMF "should be extremely cautious" in publishing results of any exchange-rate reviews it conducts so as not to spook financial markets.
A second change at the IMF would make it easier for the institution to call in several countries at a time for economic consultations. The IMF already does checks ups of individual countries' economic health about once a year.
Treasury Secretary John Snow said Rato's ideas would ensure the IMF's "continued strength and relevance in a global economy dramatically different from that which existed when the fund was created."
Finance officials urged Rato to present "concrete proposals" in time for the organization's annual meeting in September.
The IMF was established in 1945 to help promote the health of the world economy. The fund works to foster economic and financial stability, avert crises and can aid countries in trouble.
The focus at the IMF's founding was on the United States, Europe and Japan and the needs of industrial nations. Over time, emerging countries -- China, South Korea, India and Brazil, for example -- have become important players in the global economy.
Their emergence is behind another suggested change: adjusting voting shares so China and others with expanding economies have a larger say in IMF decisions.
"This is an institution based on the representation of countries based on their economic weight in the world economy," Rato said. "The world economy is not a frozen thing; it changes over time."
Yaga Reddy, head of India's central bank, said "emerging market countries should get their rightful position" at the IMF. China's Zhou agreed.
As the world's largest economy, the U.S. has the largest single vote -- weighted at about 17 percent. The U.S. has said it is willing to scale back slightly its voting share to give other countries a larger voice.
Europeans support the need for change, yet are reluctant to scale back their votes, contending some European countries already are underrepresented.
"Germany supports the fair representation of all members in the fund," said the country's finance minister, Peer Steinbrueck. "Many fast-growing economies are no longer adequately represented. This is particularly true for, but not limited to, Asia. Many European members, including Germany, are also underrepresented."
Poor countries, too, want more of a voice.
"We would like to see some changes," said Jean-Claude Masangu Mulongo, governor of Congo's central bank.
The drive for reform is also is getting embraced by some aid groups.
"This is the IMF's year to build a more representative organization that speaks for poor people and not at them," said Max Lawson, policy adviser for Oxfam International.
On the Net:
International Monetary Fund: http://www.imf.org
World Bank: http://www.worldbank.org