New York Times

U.S. Seeks Bigger China Role in I.M.F.

By STEVEN R. WEISMAN

Published: August 30, 2006

WASHINGTON, Aug. 29 — In an effort to gain Chinese cooperation on international economic issues, the Bush administration is pushing for China and other developing nations to get more power in the global institution that has played a central role in easing myriad financial crises since the end of World War II.

Treasury Secretary Henry Paulson

Timothy D. Adams, a Treasury under secretary, prefers that Beijing have increased responsibility.

But the American-led effort to increase influence at the International Monetary Fund for China — and for South Korea, Turkey and Mexico, as well — is being resisted by several countries in Europe, which would lose power to those who would be gaining it.

Administration officials argue that the I.M.F. has to be restructured to reflect the strength of fast-growing countries in Asia, Latin America and parts of Europe so these countries have more of a stake in a 60-year-old international system that oversees potential problems from the huge global flows of currency and capital.

“The I.M.F. has been asleep at the wheel in an era when private capital flows have been growing at an unprecedented pace,” said Timothy D. Adams, under secretary of the Treasury for international affairs. “The fund needs to get back to basics to deal with the problems of the 21st century.”

Mr. Adams said that China, like many other fast-developing countries, is “woefully underrepresented” at the I.M.F., with a smaller share of the total voting rights than other countries with smaller economies slower growth. The United States wants economic growth and the size of the economy to determine the scale of a nation’s voice at the fund.

The proposals are to be taken up at a meeting of the I.M.F. and the World Bank late in September in Singapore, to be attended by Treasury Secretary Henry M. Paulson Jr.

At the same time, the administration is urging China to take on a greater role in promoting an open global trading system by helping restart the aborted trade talks sponsored by the World Trade Organization.

The I.M.F., along with the World Bank and the General Agreement on Tariffs and Trade, the precursor to the W.T.O., grew out of meetings near the end of World War II at Bretton Woods, N.H. They were set up as part of a postwar financial system aimed at avoiding a repetition of the economic crises of the late 1920’s and 1930’s that helped lead to the war.

China is a particular focus of American interests because of the Bush administration’s uneasy relationship with the Beijing government and its desire for China to become a “stakeholder” in the international system, as American officials put it.

The United States argues that China has been using its vast foreign exchange reserves, earned from trade surpluses with the United States, to intervene in the markets and keep its currency artificially low to increase its exports, contributing to the loss of American manufacturing jobs.

Critics of the Bush administration in Congress are calling on it to rebuff China’s demand for more power at the I.M.F. until Beijing revalues its currency in relation to the dollar.

But Mr. Adams and other American officials say that rather than limit China’s influence at the I.M.F., they want to increase its role there and make the lending institution a more aggressive monitor of currency manipulation by member nations.

“I would argue that by re-engineering the I.M.F. and giving China a bigger voice,” Mr. Adams said, “China will have a greater sense of responsibility for the institution’s mission.”

The initial proposed increases for China, South Korea, Turkey and Mexico in voting weight and quotas — which entitle members to more borrowing in emergencies — is viewed by Washington as a “down payment” for future changes increasing the power of many other countries, including oil-producing nations.

But objections to the American proposal have come from Belgium, the Netherlands and Scandinavian countries, which might lose proportional voting shares in favor of Spain, Ireland and other rapidly growing nations of Europe. Britain is siding with these smaller countries in resisting the American proposals, officials said.

Europeans also fear that the overall weight of Europe at the fund, whose managing director has by tradition always been a European, could diminish. They want voting shares to recognize the importance of other factors, like the openness of their economies and the volume of trade between European countries.

In addition, some poor countries in Africa and elsewhere fear that a reorganized I.M.F. would further reduce their already limited power. So the administration wants to make sure that any changes do not diminish the voting rights these countries have now.

The American approach on the I.M.F. is seen as somewhat similar to the kind of changes officials want at the United Nations Security Council, where veto power is retained by the club of victors in World War II that are permanent members of the Council: the United States, China, Russia, Britain and France. Washington wants to expand the permanent membership to include Japan and at least one major developing country.

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Voting at the I.M.F. is determined in part by a quota system that calculates how much a country must contribute to the fund and how much it can borrow in emergencies. The United States has 30 percent of the world economy but only a 17 percent share of the quota system.

Under the American proposal, China and the others would be given a small increase in voting share in the down payment phase and a larger share later.

But neither the initial nor the future increases in the shares of these countries would reduce the American share by more than a fraction of a percentage point below the 17 percent level.

That point is important because an 85 percent vote is required for many I.M.F. matters, including amending bylaws and changing the quota shares. Europe’s combined voting share is currently about 23 percent, roughly equal to its share of the world economy.

If more power were given to the big developing countries, Europe would lose overall voting share at the I.M.F. by an unspecified amount.

Britain is supporting the concern of the smaller European countries because its chancellor of the Exchequer, Gordon Brown, is now the chairman of a committee of European economic and finance ministers and is trying to keep the coalition of European countries together as a bloc, European and American officials said.

“The U.S. position is an honest and decent proposal, and everybody in the European community is prepared to step up to the plate,” a European diplomat said. “But we need to have more flesh on the bones at the moment.”

The I.M.F.’s managing director, Rodrigo de Rato, has called for an immediate increase in power for some countries, to be approved at the meeting in Singapore as part of a two-year restructuring program. Earlier this month, he said, “It is time now to recognize the rise in economic weight” of China and others.

The fund has $28 billion in loans outstanding to 74 of its 184 countries, given out over the years to avert defaults, bankruptcies and other crises. In the 1990’s, the fund was involved in bailing out Mexico. Late in the decade, it helped rescue Thailand, South Korea and several other Asian countries from insolvency.

But since then, the fund has had no major crises to deal with, and many recipients of the 1990’s bailouts are now sitting on large reserves that can be used to help other countries in the future. The American approach is to enlist these countries in maintaining an international system rather than having them go their own way.

But because the I.M.F. has not recently had a major crisis, some economists joke that with little to do, board members have the luxury of squabbling among themselves for power over an organization with an ill-defined mission.

Mr. Adams said that the current benign period has led to complacency, even as global capital flows and the risk of future problems increase. “Conceptually we’re pretty much there,” he said of the talks on I.M.F. governance. “But once you start negotiating the actual specifics, it’s going to take a little time.”