G20 Ministers agree on historical reforms in IMF governance
25 October 2010
Strauss-Kahn said that the issue of global imbalances had been something of a forgotten question during the global economic crisis. However, the issue had been fairly discussed in a straightforward manner at the ministerial G20 meeting.
Ministers of the Group of Twenty (G20) industrialized and emerging market economies agreed on a proposed raft of reforms of the IMF that will shift country representation at the IMF toward large, dynamic emerging market and developing countries.
Meeting in Gyeongju, Korea, G20 finance ministers and central bank governors agreed on a doubling of IMF members’ quotas—financial stakes that determine voting power in the institution that will shift voting shares toward dynamic emerging market and developing countries.
As a result of the quota rebalancing, the large, dynamic emerging market countries Brazil, China, India, and Russia move up to be among the top 10 shareholders of the IMF.
The ministers also agreed on a reshuffle of the IMF’s 24-member Executive Board that will raise the representation of dynamic emerging market and developing countries on the institution’s day-to-day decision-making body. There will be two fewer Board members from advanced European countries, and all Executive Directors will be elected rather than appointed as they are now. The size of the Board will remain at 24.
Discussion on legitimacy
IMF Managing Director Dominique Strauss-Kahn, speaking to reporters after attending the Gyeongju meeting, said the move was “historical” and the most important decision on the governance of the IMF since its creation in 1944. “There will be other reforms, but what we did today puts an end to a discussion on legitimacy that had lasted for years, almost decades."
Expectations exceeded
Strauss-Kahn said the decision on IMF governance had responded to the mandate given in Pittsburgh in a way that exceeded expectations. "The 10 biggest shareholders in the IMF are those who deserve to be in the top 10 as they are the 10 most systemically important countries in the global economy," stated Strauss-Kahn . He also said the IMF’s Executive Board would be a "more democratic Board as will be an all-elected Board".
The communiqué from the G20 meeting in Gyeongju said the ministers welcomed the IMF's work to conduct spillover assessments of the wider impact of systemic economies' policies.
G20 ministers resolved to strengthen multilateral cooperation to promote external sustainability, and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels.
Strauss-Kahn told reporters after the G-20 ministerial meeting that the issue of global imbalances had been something of a forgotten question during the global economic crisis. However, the issue had been fairly and straightforwardly discussed at the meeting. Strauss-Kahn noted “the will by all parties to put in place policies that may converge and limit excessive risk in terms of external sustainability.”
Persistently large imbalances
The ministers said persistently large imbalances, assessed against indicative guidelines to be agreed, would warrant an assessment of their nature and the root causes of impediments to adjustment as part of the Mutual Assessment Process, recognizing the need to take into account national or regional circumstances, including large commodity producers. The Mutual Assessment Process is a G20-led exercise supported by the IMF.
“To support our efforts toward meeting these commitments, we call on the IMF to provide an assessment as part of the Mutual Assessment Process on the progress toward external sustainability and the consistency of fiscal, monetary, financial sector, structural, exchange rate and other policies,” the communiqué said. The quantitative framework for these assessments is to be developed by the G20 in time for the Seoul G20 summit.
Strauss-Kahn said he had had discussions with authorities of China, Europe, Japan, and the United States, and they all wanted to do their best to keep the global recovery on track. "They understand that the biggest threat today would be an endless fight over current account or confrontation over exchange rates," Strauss-Kahn observed.
The G20ministers welcomed the recent reform of the IMF’s lending facilities, including the enhancement of the Flexible Credit Line and the establishment of the Precautionary Credit Line to strengthen the global financial safety nets. Ministers called on the IMF to continue its work to further improve the global capacity to cope with systemic shocks.
Strauss-Kahn said the IMF’s role in strengthening global financial safety nets was an important achievement. The Flexible Credit Line and the Precautionary Credit line were supports that allowed the IMF to build safety nets. “The institution is not only a firefighter that provides resources when you have a crisis. It also tries to prevent crises and now has the financial tools to avoid crises,” Strauss-Kahn stated.
© International Monetary Fund
