CHINA / Foreign Media on China
Bigger IMF role for China
(IHT)
Updated: 2006-08-29 09:34
http://www.iht.com/articles/2006/08/28/business/trade.php
The United States is seeking to increase the power of China and other
countries within the International Monetary Fund to reflect their growing
weight on the world economic stage, an effort that is being resisted by
some European countries whose voices could be weakened within the
organization.
The Bush administration, arguing that the IMF has been "asleep" as the
world economy changed, is seeking a first step that would grant more
voting power immediately to four countries - China, South Korea, Turkey
and Mexico - on the grounds that their economic growth entitles them to
more influence.
But because the administration's proposal would mean less representation
by some countries in Europe, it has run into objections and questions,
especially among European countries that could lose power.
Resistance has come from Belgium, the Netherlands and Scandinavian
countries, which might lose voting share to Spain, Ireland and other
rapidly growing countries in Europe. In general, Europe would lose voting
share to Asia and the United States.
Poor countries in Africa also fear a loss of power.
The proposals for changing the governance of the fund, which has had a
crucial role in easing financial crises since World War II, are to be
taken up at a meeting in late September in Singapore that is to be
attended by U.S. Treasury secretary, Henry Paulson Jr.
"Many countries in the world are woefully underrepresented at the IMF,"
said Timothy Adams, the U.S. under secretary of the Treasury for
international affairs. He added that the administration was pressing the
fund to undertake "fundamental reform" of its basic mission, as well as
its governance.
Voting at the IMF is determined in part by a quota system that defines
how much a country must contribute to the fund and how much it can borrow
in emergencies.
The United States has 30 percent of the world economy but only 17 percent
share of the quotas; Europe's share of 23 percent is roughly equal to its
share of the world economy.
The Bush administration says that Europe must recognize that its share
will go down, as the United States' share has.
China is a particular focus of American interests and anxieties in the
IMF jockeying, American and European officials say. At present, its
economy is double the size of the Belgian and Dutch economies combined,
yet these two countries have a quota that is half again as big as China's.
Critics of the Bush administration in Congress are calling on it to
rebuff China's demand for more influence at the IMF until the Beijing
government revalues its currency in relation to the dollar. These critics
charge that China has kept its currency artificially low to increase its
exports at the cost of American jobs.
Adams and other American officials say that they want to increase Chinese
influence at the IMF to make the fund a more aggressive monitor of
currency manipulation by member countries. American officials say that
would put the fund in a better position to put pressure on China to let
its currency, the yuan, rise in value and thereby curtail exports to the
United States and increase the market in China for American goods and
services.
"I would argue that by re-engineering the IMF and giving China a bigger
voice, China will have a greater sense of responsibility for the
institution's mission," Adams said.
An increase for China, South Korea, Turkey and Mexico in voting weight
and quotas is viewed by the United States as a "down payment" for future
changes that would increase the power of other countries in Latin
America, Asia and parts of Europe.
The smaller countries of Europe have gained sympathy from Britain and its
finance minister, Gordon Brown, various officials said. "The U.S.
position is an honest and decent proposal, and everybody in the European
community is prepared to step up to the plate," said a European diplomat,
speaking anonymously because the negotiations are still under way. "But
we need to have more flesh on the bones at the moment."
The IMF's managing director, Rodrigo Rato, has called for an immediate
increase in power for some select countries to be approved at an annual
meeting in Singapore as part of a two- year restructuring. Earlier this
month, Rato said, "It is time now to recognize the rise in economic
weight" of China and others.
The IMF, along with the World Bank, was created in 1944 at Bretton Woods,
New Hampshire, as part of a postwar financial structure designed to avoid
a repetition of the economic crises of the 1930s that preceded World War
II. The fund has $28 billion in loans outstanding to 74 of its 184 member
countries, given out over the years to avert defaults, bankruptcies and
other crises. In the early 1990s, the fund was involved in bailing out
Mexico.
Later in the decade it helped rescue Thailand, South Korea and several
other Asian countries from insolvency. But since then the fund has had no
major crises to deal with, and many recipients of its previous efforts
have paid off their loans.
Some economists joke that with little to do, board members have the
luxury of squabbling among themselves for power over an organization with
an ill- defined mission.
Adams of the Treasury Department said that the current slow period had
induced complacency as global capital has flowed, and the risks of future
problems have increased. He said he wanted the fund to "get back to
basics" of monitoring these flows and the ways they affect the value of
currencies.
"The fund needs to rediscover its roots," said Adams, asserting that it
had been set up to avoid countries' using currency and trade policies in
a "beggar-thy-neighbor" approach that aggravated the Depression of the
1930s.
He said the Bush administration had made headway in persuading other
countries to make the changes. "Conceptually we're pretty much there," he
said. "But once you start negotiating the actual specifics, it's going to
take a little time."
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