September 15, 2010 / 11:12 AM / 9 years ago

Germany and EU mull IMF board deal - German official

BERLIN (Reuters) - Germany and other EU nations are ready to review the distribution of power on the International Monetary Fund board as part of a wider change of representation at the lender, a German government official said on Wednesday.

The United States wants Europe to give some of the seats it occupies on the IMF’s 24-member board to emerging market countries to reflect their growing global economic weight.

Europe has thus far balked at the idea of yielding some of the nine chairs it holds as it is divided over how to do it.

So far no formal proposal has emerged on how to resolve the issue. However, the German official said European countries were making progress in talks on the issue.

“I wouldn’t say there is a European position on this or a European proposal but there are talks, which are very advanced on what the proposal could be,” said the official, speaking on condition of anonymity.

“We agree in principle that there has to be some sort of reshuffle of the executive directors that allows for a better representation of the dynamic, developing nations but we see this in a slightly bigger framework,” the official added.

Germany and other European countries could be ready to rejig board representations if this was done in tandem with a review of IMF membership quotas, the way the lender’s managing director is appointed and the United States’ veto on important decisions.

Greater rotation on the board could see Europe at times cede some representation to emerging countries.

“I think the main message here is a rule-based rotation system of the executive directors, as far as the Europeans are concerned, that would reduce relatively the presence of the EU at certain times on the board,” the official said.

The board has overseen the approval of billions of dollars in emergency loans for countries hit by the global financial crisis including Greece, Latvia, Romania and Ukraine.

Frustrated with Europe’s resistance to yield power, the United States took an unprecedented step on August 6 of blocking a resolution which would have kept Europe’s board dominance.

The sides face an October 31 deadline when the mandate of the existing board expires.

PACKAGE

On quota shares — or voting weights — Germany and other European Union countries were looking at the idea of shifting around 5 percent of the entire quotas from industrial countries to emerging economies.

“That would have to be shared by the industrial nations and that would imply a minor reduction in the quota of the U.S,” the official said.

“The idea would be not to agree straight away on the exact quotas but on the principle and in the course of next year, let’s say by 2012 ... to have these rules of rotation for Europe and others in place,” he added.

As part of a package deal on IMF representation, Germany was also willing to review the appointment of the IMF managing director, which now goes to a European while the head of the World Bank is from the United States.

“We’re ready to throw this in the package as well and make it merit-based and not according to nationality. This would have to also be the case at the World Bank,” the official said.

Important decisions on the IMF board now require a super-majority of 85 percent of the votes.

The United States has a voting weight of some 17 percent, allowing it to veto such decisions. Reducing this threshold could end the U.S. veto, the official said.

“We want to keep the 24 (board) seats and we want that to be in the articles of agreement so we don’t have this situation ever again,” he added.

editing by Patrick Graham

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