WANTED:A new direction for IMF

Set up in 1969, IMF is an international organisation of 184 nations to promote international monetary cooperation, exchange stability and orderly exchange arrangements to foster economic growth and high levels of employment and provide temporary financial assistance to countries to help ease balance of payments adjustment.

WHAT

IMF managing director Rodrigo Rato who has realised the need for an overhaul has unleashed his proposals for a much-needed revamp. They range widely from questions of increased power to emerging economies to matters of paperwork. IMF functions as a bank and covers its running costs from the interest it earns on its loans. But this financing model 8216;8216;is no longer tenable8217;8217; as Rato8217;s own report says.

HOW

Rato hopes to bring back these nations under its 8216;8216;lending8217;8217; fold by introducing new measures like committing itself in advance to help favoured countries. He has proposed a two-stage process starting with an ad-hoc increase in the IMF quota, or subscriptions for some emerging nations like China and South Korea. The second stage could see increases in 8216;8216;basic votes8217;8217; of African countries followed by possible adjustments in the number of seats on the IMF board currently skewed in favour of European nations.

WHY

IMF functions on the basis of quota system, whereby the quotas are currently calculated according to a member8217;s GDP, current account transactions and official reserves. This quota largely determines a member8217;s voting power in IMF8217;s decisions, access to financing, SDR allocations and is reviewed every five years, with the next review due in 2008. The G-24 nations have long pushed for changes in the IMF8217;s voting structure to better reflect their rising power in global economy. Their demands include changes in the way IMF quotas are calculated that should take into account purchasing power parity and developing nations greater vulnerabilities to commodity price fluctuations and volatile capital flows.

The 6th WHAT NEXT

The IMF8217;s steering committee has already given Rodrigo Rato a clear mandate to propose changes by the next meeting in Singapore in September to give a stronger voice to emerging economic powers in the decisions of power. Rato must come up with concrete and comprehensive proposals to broker a deal between the emerging and established powers to tackle the imbalance issues. If this matter is kept pending any longer, it could see some developing nations, particularly in Asia, moving away from its fold.