New York Times
Seeks Bigger China
Role in I.M.F.
STEVEN R. WEISMAN
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.
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
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
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.
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,
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
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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
Under the American
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
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
“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.”
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
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,
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.”