IMF board overhaul is the biggest shift in two decades

PUBLISHED : Tuesday, 16 October, 2012, 12:00am
UPDATED : Tuesday, 16 October, 2012, 4:03am

The International Monetary Fund's executive board is undergoing the biggest reshuffle in two decades in a shift emerging markets including Brazil say remains insufficient to reflect their rising economic power.

Starting next month, some western European countries are realigning to give nations such as Turkey and Hungary more say under a 2010 pledge to give up two seats on the 24-seat board. Changes are also taking place among emerging markets, with Colombia leaving Brazil's group to join Mexico's.

The overhaul reflects "significant economic realignments at the global as well as regional levels", said Eswar Prasad, a Cornell University professor and a former IMF official. "Small countries are jockeying for position to make sure their voices are heard while some of the larger but less dynamic economies are trying hard to preserve their clout despite their diminishing economic significance."

The changes are the largest since the early 1990s, when the Soviet bloc collapsed and a flurry of new countries joined the fund. The attempt this time is to give more power to economies representing a growing share of the world's economy just as the IMF's 188 member countries clash over how to calculate voting rights in 2014.

"Emerging markets remain concerned about the slow pace of reforms of the governance structure of the IMF," Prasad said.

The 2010 agreement on Europeans' board representation is part of a package that also boosts emerging economies' voting rights and makes China the fund's third-largest member country. It has not yet come into effect, mainly because the US, the IMF's largest shareholder, has not ratified it.

European nations including Belgium and the Netherlands are bringing in changes from November 1. The plan, which partly relies on a system of rotation between emerging and developed economies, was called "cosmetic" by Brazilian Finance Minister Guido Mantega, who says they advantage eastern European countries and Europe as a whole.

The IMF executive board's two dozen executive directors are appointed or elected by countries or groups of nations, and managing director Christine Lagarde or her deputies serve as the chair. The panel meets several times a week, making decisions largely based on the work of the fund management and staff.

Belgium, Luxembourg and the Netherlands have said they are forming their own group, along with countries currently represented by the Netherlands. That helps Turkey, the Czech Republic and Hungary as part of an agreement to rotate with Austria for executive director.