The International Monetary Fund has decided to double its capital and adopted other reforms that will give China and other emerging-market economies a greater say in the financial institution.
The IMF executive board agreed to sweeping changes on Friday, ahead of next week’s G20 summit in Seoul, expected to be heated amid currency and trade tensions largely centered on the United States and China.
Proposed by the Group of 20 advanced and emerging-market economies, the package of long-sought reforms aims to better reflect the growing importance of big emerging-market and developing economies in the global economy.
Speaking at the end of talks, IMF managing director Dominique Strauss-Kahn lauded the “historic” deal, which he said created “the biggest ever shift of influence in favor of emerging market and developing countries.”
The IMF board’s calendar cast the meeting under the title “IMF Quota and Governance Reform — Elements of an Agreement.”
Quotas are the contributions of the 187 member states to the fund’s capital. The G20, which represents more than 90 percent of the global economy, has agreed they should be doubled, to 756 billion dollars.
The “governance” reference addresses proposed changes in the balance of power on the 24-director executive board, whose members represent nations or groups of nations and run the day-to-day business of the IMF.
Upon his arrival at the IMF in 2007, Strauss-Kahn made quota redistribution a top priority to resolve a long and bitter fight by emerging-market and developing countries to wrest greater power within the Washington-based institution.
Formed after World War II to remake the world financial system and prevent a return to the 1930s Depression, the IMF has long been dominated by Western powers.
When a previous quota reform plan was officially adopted by member states in April 2008, Strauss-Kahn hailed it as “the beginning of the new legitimacy of the Fund.”
But that reform had not been enacted due to the lack of a sufficient number of ratifications by member states.
Friday’s reforms are designed to close this chapter.
The voting shares of emerging market and developing countries as a group will rise by just over five percentage points, Strauss-Kahn said.
China will move up to the third-largest shareholder, from sixth place.
Europeans have agreed to cede two of their nine seats on the IMF board and all members will be elected, instead of some appointed.
Still, for the reforms to take effect, they will have to be approved by the bank’s governors and go through what could be a long process to obtain legislative ratifications.
The G20 has committed “to work to complete by the annual meetings in 2012″ the reforms, Strauss-Kahn said ahead of Friday’s decision, referring to the IMF and World Bank meetings held in the autumn.
The goal coincides with the scheduled end of Strauss-Kahn’s five-year tenure at the IMF in October that year.