IMF reforms in sync with global reality: G20

Global leaders today said their agreement on shifting over 6% voting power in IMF to emerging market economies will increase the Fund's credibility and effectiveness, as it mirrors the new world order.

The Seoul Action Plan agreed at the end of the two-day Summit of the G-20 leaders to modernise the International Monetary Fund (IMF) such that it "better reflects the changes in the world economy through a greater representation of the dynamic emerging markets and developing countries."

Besides India, the G-20 group includes US, China, Germany, France, Brazil, Russia and Japan.

The declaration comes just days after the finance ministers of the G-20 nations agreed to give a greater say to the emerging markets by shifting over 6% quota to them in the multi-lateral lending agency.

With this, India's rank in IMF will improve to the 8th position from the current 11th in terms of quota, while China will see an improvement in its ranking to the third position from the present sixth.

Quota represents the relative position of members of IMF. It is based on various parameters like country's GDP, openness, forex reserves etc.

"These comprehensive quota and governance reforms will enhance the IMF's legitimacy, credibility and effectiveness, making it an even stronger institution for promoting global financial stability and growth," the G-20 leaders declared at the end of their two-day Summit here.

India and other emerging market economies have been demanding reforms in IMF to give more powers to them in line with their share in the global economy.

Prime Minister Manmohan Singh exuded confidence that the Seoul Summit has delivered on the promise of reform of the IMF.

"We have agreed to a shift in quota shares of 6% to emerging market countries and the composition of Board is being changed to reduce the European representation.

"With the additional resources already provided to the IMF, we have not only provided the IMF with the firepower that it needs to perform its stabilisation role, but also moves it in the direction of greater democratization," Singh said.

Emerging market economies contribute around 47.5% to the global economy in terms of purchasing power parity, but have only 39.5% share in the IMF.

Their share will now increase to over 45.5% in the 187-nation body IMF.

Also, Europe will give up two of the eight or nine seats it controls at any given time on the IMF's Executive Board, which will continue to have 24 members, as per the agreement.

Now next phase of reforms will start in 2013.