Governing the Fund

The G-20 finance ministers signed off on the most significant reform of the International Monetary Fund in Gyeongju,South Korea,over the weekend. According to Finance Minister Pranab Mukherjee,the agreement looked uncertain until a last-minute meeting of G-7 finance ministers with finance ministers from the BRIC nations. Since

any deal on reform required a transfer of voting rights away from developed countries to emerging economies,it was not unreasonable to expect some resistance. In the end,however,6 per cent of voting rights were transferred away from the developed countries to emerging economies,mostly to the BRIC countries in the IMF,voting on major decisions is not on a one-country-one-vote basis; each country has a quota in accordance with the size of its economy. Significantly,Europe agreed to give up two seats that it presently holds on the 24-member governing board.

China,the worlds fastest growing economy,was the biggest beneficiary of the change in voting shares. India increased its quota from 2.44 per cent to 2.75 per cent,taking it up from number eleven to number eight on the voters list.

A few things will remain constant though. India,the worlds second fastest growing major economy,still doesnt have enough votes to elect an executive director to the board without a coalition with other countries. Also,the US,with a vote share of 17.67 per cent,will still retain its veto on all IMF decisions an 85 per cent majority in the board is necessary to clear decisions. This reform isnt,after all,simply a matter of cosmetics. It is supposed to usher in a more demo-cratic global governance structure in tune with the realities of a post-financial crisis world. That task remains incomplete.