Japan determined to push IMF quota reform forward

TOKYO, Sep 13 (Reuters) Even at its own expense, Japan will push in the coming week to get other countries to ratify a plan to give China and three other emerging countries a greater say in running the IMF, Japanese officials say.

While Europe wants a slow reform of the International Monetary Fund, Japan sees the overhaul of the IMF's voting system as a chance to help restore the fund's credibility in Asia.

Tokyo argues the IMF could lose relevance in Asia if it does not address the frustration felt by Asian nations after relations with the organisation soured following the 1997/98 Asian crisis.

''Japan has been at the forefront in calling for this kind of move, so it's noteworthy that the talks have progressed to a point where the IMF came up with such a detailed plan ahead of the Singapore meeting,'' Japanese Finance Minister Sadakazu Tanigaki said earlier this month.

''But there are many issues left to be discussed, so it will be important to have strong international cooperation.'' The IMF board agreed two weeks ago to conduct a two-phase reallocation of IMF quotas, which form the basis for determining a country's voting power. The decision still needs to be ratified by its board of governors next week.

For Japan, the first round of ad hoc quota increases for China, South Korea, Mexico and Turkey means a slight decline in its own quota. Tokyo had actually proposed boosting the quotas of more than 10 countries, including Southeast Asian nations, but it failed to get enough support.

RIGHT DIRECTION IMPORTANT Now, after nearly a decade of calls for IMF reform, Japan is happy to see even small steps toward more recognition of Asia's economic power.

''We are not 100 per cent satisfied, but it is moving in the right direction,'' Hiroshi Watanabe, vice finance minister for international affairs, said last week.

What is more important, Watanabe said, is a commitment to a second round of voting power adjustments for more countries, which will be based on a new formula for calculating quotas.

He welcomed a decision to set a two-year deadline for reaching an agreement on the new formula.

But tensions are already rising over a new quota formula that could draw a clearer line between winners and losers through a more significant reshuffle of member countries' voting power.

Japan thinks the new formula should give more weight to gross domestic product and economic openness than to variables such as foreign reserves.

Europe does not want the formula to be based solely on GDP as that would give the United States too much voice.

Still, some analysts say Japan could be shooting itself in the foot.

Kenichi Takayasu, senior economist at the Center for Pacific Business Studies of Japan Research Institute, said: ''Japan's status as Asia's leading representative could be undermined as China gets more power as a member of global institutions like the IMF and the World Bank.'' Japanese officials say China's clout will grow no matter what they do, and they say Japan needs to act responsibly as the second-largest shareholder of the IMF.

''Working as a bridge between Asia and the world is a way of survival for Japan,'' one official said.

REUTERS PDM PM1243