Emerging economies throw down gauntlet at IMF

SINGAPORE, Sep 19: India today led a clutch of emerging economies in asserting their growing clout on the world stage by objecting to a landmark overhaul of the way the International Monetary Fund is run.

Indonesia and Malaysia also voiced strong reservations, teeing up a bitter battle during the next two years over a second phase of reforms meant to make the governance of the Washington-based lender more representative of its 184 members.

Speaking a day after the first stage of reforms won 90.6 per cent support but was opposed by 23 countries, Indian Finance Minister Palaniappan Chidambaram said fundamental changes in voting power were long overdue.

''What is at stake here is the credibility and legitimacy of the IMF,'' Chidambaram told the annual meeting of the fund and its sister agency, the World Bank.

''Now that the vote has been done, let me say that the 23 countries -- many of them large, emerging and well-performing economies -- that voted against the resolution may have lost the vote but have not lost the argument,'' Chidambaram said.

Argentina, Brazil, Egypt and Iran also voted against the plan, arguing that it did not go far enough, fast enough, to reflect a shift in global economic power away from the rich countries that founded the fund in 1945.

The Group of Seven industrial nations alone -- the United States, Japan, Germany, Britain, France, Italy and Canada -- wield 45 per cent of the fund's quotas, or membership subscriptions, which largely determine voting power.

By contrast, China, the fourth-largest economy, has a stake of just 3.72 per cent. Before Monday's vote it was 2.98 per cent. South Korea, Turkey and Mexico also gained bigger voting shares.

The second stage of reforms, due to be completed by 2008, is supposed to devise a completely new formula for distributing voting powers, and developing countries were not the only ones staking out their position for the wrangling ahead.

German Finance Minister Peer Steinbrueck said European Union members that are under-represented, including Germany, should also be given more power.

''It is important that the principles of equal treatment and fair burden-sharing among all IMF members are strictly applied in the second stage,'' Steinbrueck said.

DON'T PREACH

Big developing nations also stood up to the rich countries that dominate the IMF and World Bank on how to tackle graft, an issue dear to the heart of the bank's president, Paul Wolfowitz, and the U S Congress. ''If you want us to be open about corruption, the World Bank needs to be more open with us about your own corruption investigations,'' said Indonesia's finance minister, Sri Mulyani Indrawati.

If the World Bank unearths evidence of corruption in its projects, it should share the information, she said.

''Act more like partners, not preachers,'' Indrawati said, to applause from her audience of finance chiefs and central bankers.

Wolfowitz has put the fight against graft at the heart of the bank's work, but developing countries are concerned that his zeal could slow the flow of lending and punish the poor.

Chidambaram, the Indian finance minister, called the focus on corruption disproportionate and said it must not be allowed to obscure the bank's mission to free the world of poverty.

Australian Treasurer Peter Costello shot back with a demand that developing nations take a strong stand against corruption.

''Countries like us don't give aid to enrich Swiss bank accounts of rich people in the Third World. We're in the aid business for the poor,'' he said.

In his speech to the meeting, IMF Managing Director Rodrigo Rato joined in calls for a resumption of global talks to reduce barriers to commerce.

With growth possibly cresting after the strongest showing in three decades, the world economy needed to tap the benefits of expanded trade, Rato said.

''On trade, the world will either go forward to greater growth and broader opportunities, or backward, to narrow nationalism,'' Rato said. ''We should not fool ourselves that there is a comfortable middle ground.''

REUTERS