WASHINGTON: The only way to break a deadlock over how to give emerging nations more say at the International Monetary Fund is to make sure everyone walks away feeling like a winner, Egypt’s finance minister and chair of the IMF’s steering panel said on Wednesday.
In a Reuters interview, Youssef Boutros-Ghali said unless emerging markets feel their voices are heard inside the IMF, the fund cannot be an effective forum for addressing tough global issues including tensions over currency exchange rates.
Emerging markets demand representation commensurate with their increasing economic clout, but Europeans don’t want to lose seats on the IMF’s executive board and Americans don’t want to give up their veto power.
"Let’s agree on a package of measures where all of us, each of us, can find some winning element," said Boutros-Ghali, who chairs the IMF’s International Monetary and Financial Committee, which convenes on Saturday as part of the twice-yearly meetings of the IMF and World Bank.
The IMF’s 187 member countries must agree on a series of reforms including a redistribution of IMF quota shares, which determine voting power of each member country, and the makeup of the IMF board, currently dominated by European countries.
Instead of tackling each issue separately, Boutros-Ghali said all the issues should be wrapped up into one package so that there will be room for give and take.
The United States, frustrated with Europe’s refusal to share more power, last month declined to back a resolution that would have maintained European dominance on the IMF board.
European countries and the United States dominate the IMF in a reflection of the post World War Two order, which is now being challenged by the rise of nations such as China.
Europe has proposed rotating two of its nine seats on the IMF board with emerging economies, but the United States is unlikely to accept the compromise because it does not amount to meaningful reform.
"The board issue in isolation is unsolvable because there is a winner and a loser. The loser will not accept the loss and the winner can wait," said Boutros-Ghali.
Going their own way
Boutros-Ghali said he wants countries to narrow their list of demands so that they can forge some consensus this weekend around a compromise that might break the impasse before leaders from Group of 20 nations meet in Seoul in November. The IMF has pledged to finalize its reform plans by January.
Without changes that give emerging markets more influence, the IMF would become irrelevant, he said.
"(Emerging economies) won’t hang around. They will just leave and go their own way, and when we need them to establish a framework, the IMF will be irrelevant because you have ignored the main drivers of the system."
"They will continue on their merry way and leave you behind," he added.
Boutros-Ghali said the IMF was the only forum where countries from around the globe could come together to work out their economic differences.
He said the G20 club of rich and emerging economies was only effective when member countries agree on issues. When they don’t, the IMF is the logical choice to step in as neutral arbiter, but can only fill that role when all parties respect its authority, Boutros-Ghali said.
"When they all agree then it’s easy, but when they disagree what do we do?" he said.
Boutros-Ghali said the IMF had to be modernized and given the tools not only to spot crises in a more integrated world, but also the influence to tackle economic problems.
"The IMF is the optimum forum where currencies should be discussed and where currency policy should be coordinated," he said.