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September 17, 2006 8:02 pm

IMF expects to win reform vote

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The International Monetary Fund is poised to win the 85 per cent of shareholder votes it needs to launch a far-reaching overhaul of its ownership and governance intended to give rising economies such as China a bigger say in the fund.

Details of the vote, which closes this afternoon, will not be known until tomorrow. However, yesterday Rodrigo Rato, managing director of the IMF, said: “I am very encouraged by what I have heard.”

The IMF’s governing council unanimously endorsed a communiqué backing the two-stage reform plan. Gordon Brown, British chancellor of the exchequer and council chairman, said: “This will be the biggest reform of the governance of the IMF for 60 years.”

In an exclusive interview with the Financial Times, Paul Wolfowitz, president of the World Bank, said the bank would have to follow the IMF and reform its own ownership structure to give a bigger say to non-US and European nations. “We do not intend to sit it out,” Mr Wolfowitz said. “We have already begun internal work thinking about what the IMF changes mean for us.”

However, in a sign that reaching final agreement on the shape of reform of either institution will be very difficult, governments used the meeting yesterday to stake out sharply differing positions on the final destination for the IMF.

“It is going to be a very, very complex exercise to do the next round,” said Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development.

Brazil called for the new shareholding formula to take into account “variability” of external accounts, while India said it should be based on the size of the economy as measured by purchasing power parity.

Argentina complained that intra-eurozone trade should not be included in any new formula, but eurozone countries are opposed.

Japan said increased shares should be given to a large number of under-represented countries, while Belgium said only the most under-represented should get an immediate increase.

The IMF council, meanwhile, endorsed parallel plans for the fund to focus its surveillance more on spill-over effects of countries’ policies, and backed Mr Rato’s proposal that it develop a plan to offer insurance-like loan facilities for well-run emerging markets.

Mr Wolfowitz will today seek approval from the World Bank’s shareholder governments for a new anti-corruption strategy, which has had to be revised several times after opposition from some European nations. Reaching out to his critics, he said the strategy “recognises that the goal is development, not just good governance for its own sake”, and that the goal “is to support increased lending, not find an excuse to cut back”.

Mr Wolfowitz will also ask finance ministers and central bank governors to back a plan to speed up loan approvals for middle-income countries and make the pro-cess less costly for its clients. The same plan proposes unbundling the bank’s lending and technical advice, giving countries the option of borrowing privately and paying for the bank’s consulting services on a stand-alone basis.

The World Bank wants to move away from providing standardised loans to offering a range of customised financial products.

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