Rodrigo de Rato, IMF managing director, welcomed the passage of the reforms, which were approved on Monday and give greater voting power to China, South Korea, Turkey and Mexico, but warned that the members face daunting challenges in keeping the world economy on track.
“The global growth cycle may be turning,” de Rato said, pointing to high oil prices, massive imbalances in trade and investment and the threat of protectionism as world trade talks stall.
Paul Wolfowitz, the World Bank president, urged wealthy countries to follow through on their promises of aid to Africa which he said had been “conspicuously left behind”.
Economists agree that the global economy is far less vulnerable than a decade ago, when currency fluctuations exacerbated poor banking practices in Asia, forcing the IMF to bail out Thailand, South Korea and Indonesia.
The IMF insisted that these countries raised interest rates, privatised national industries and cut subsidies on gasoline and other basic goods; but critics have said that the measures are too harsh and made things worse.
Asian economies have bounced back strongly, and China and India have surged into the forefront of global growth. The Washington-based IMF and World Bank have been under pressure to make their institutions more representative of changes in the global economy.
The reforms passed by the 184 member nations increased the voting shares of China, South Korea, Turkey and Mexico; but other nations will have to wait at least two years to see their voting shares adjusted under the two-step reform plan.
“We would hold the management of the IMF and the countries that supported the resolution to their promise – that the second stage will begin now”
India, Brazil, Argentina and other Latin American nations voted against the plan, saying they were also under-represented at the fund. They argued that the entire voting structure should be overhauled now.
P. Chidambaram, the Indian finance minister, called the reforms “hopelessly flawed”. The 23 countries that opposed the plan “may have lost the vote, but we have not lost the argument,” he told delegates.
“We would hold the management of the IMF and the countries that supported the resolution to their promise – that the second stage will begin now,” he added.
Voting shares affect member countries’ say in decisions at the IMF and how much they can borrow from it. The weight of each nation’s vote is determined by a formula that includes the size of its economy, openness to trade flows and other criteria.
De Rato said the changes were a significant step forward in giving developing nations a greater voice in the institution, which seeks to foster economic stability and provide emergency loans to members in financial crisis.
“They will enhance our effectiveness and add legitimacy to all the other reforms that we are implementing,” he said.
De Rato and other finance leaders from around the world also pushed for the Doha Round of World Trade Organisation talks, that collapsed in July amid disagreements over how much to cut agricultural trade barriers, to be resumed.