By IAN TALLEY And COSTAS PARIS
WASHINGTON – Turkey and Poland will for the first time hold seats on the International Monetary Fund’s executive board under a political agreement reached in recent weeks, according to people involved in the matter.
Although the two countries will share their seats on a rotating basis with other countries, the deal represents an ongoing shift in power that gives emerging economies greater power at the world’s emergency lender. The stronger say comes at Europe’s expense and after many emerging markets vowed to help boost the IMF’s lending ability amid the ongoing euro-zone debt crisis.
“It’s a substantial step to give emerging economies a bigger role on the board and the decision making” an official at the IMF said.
Another official at the IMF called the new board-seats agreement “a big reform in the IMF.”
“This is indeed the first moves from Europe to give up some power, giving it to emerging markets,” he said.
Founded in the wake of World War II, the IMF has been dominated by the U.S. and Europe for decades. Europe and the U.S. will still hold the majority of power at the IMF, which will soon have a total resource base of around $1 trillion dollars.
But as emerging nations increasingly help drive the global economy and contribute more lending resources to the IMF — largely to lend to Europe in recent years — they have called for greater voice and vote at the fund. Some countries have already gained seats at the 24-member executive board, including China, India, Russia and Brazil.
A governance reform deal agreed in 2010 plans to give many emerging markets even greater power, however. For example, once the 2010 agreement is fully ratified, China will be the third-strongest member by voting rights and Russia will get a greater say in IMF operations. Europe also tentatively agreed then to give up two of its eight seats on the executive board.
The deal hasn’t yet been ratified, however. Until now, Europe has shown reluctance to deliver on its promise, particularly as the U.S. has failed to get Congressional approval for the governance reform deal. The U.S. Treasury Department hasn’t indicated when it plans to try and get Congress to ratify it, but many insiders say it’s highly unlikely until late fall.
The euro zone’s need for a bigger IMF emergency-lending warchest may have helped lubricate the political wheels for Europe to agree to a deal. Many emerging nations conditioned their contributions to a near $500 billion resource drive on promises that the IMF would move ahead with the governance reforms.
Under the new political board-seat agreement, Belgium will share an executive board seat with the Netherlands, giving Turkey the opportunity to share the seat with Austria, Hungary and the Czech Republic, on a rotating basis every few years.
Except for eight major economies, including the U.S., China and Japan, the remaining board seats represent groups of the several score of other IMF member countries. Most of the 188 member countries at the IMF get little say in how the IMF is operated. Winning one of the 24 board seats, then, transforms the power of a country such as Turkey or Poland. Poland will share its board seat on a rotating basis with Switzerland.
The officials at the IMF said the deal isn’t complete, however. Aside from needing the U.S. to ratify the 2010 governance reform agreement, Europe won’t have technically acceded the full two board seats it had promised and more shuffling may yet be needed.
Write to Ian Talley at ian.talley@dowjones.com and Costas Paris at costas.paris@dowjones.com
Article source: http://online.wsj.com/article/SB10001424052702303740704577526443308771550.html?mod=rss_economy
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