The global financial turmoil of recent months highlights the interdependence of economies across the world and proves the need for multi-lateral discussions and action, Rodrigo Rato, the managing director of the International Monetary Fund, said on Thursday.
He pledged that this weekend’s IMF and World Bank meetings of finance ministers and central bank governors would discuss the policies needed to re-evaluate the “prudential framework” in credit markets and strengthen risk management in both good times and bad.
Mr Rato said the impact of the credit squeeze “will be felt for some time” throughout the world’s economy. He said the risks of global financial disorder associated with a plunge in the dollar, protectionism, high oil prices and emerging economies with large trade deficits had all increased.
Meanwhile, Robert Zoellick, the new president of the World Bank, told the FT the bank would follow the IMF in seeking to boost the “voice and representation” of developing countries within the institution.
Mr Zoellick said he had discussed with the bank’s board a two-stage process in which the initial step would involve an “increase in basic shares” held by all countries and a drive to “add diversity to the workforce” by hiring more people from African and other developing nations. The bank would also consider increasing the number of executive directors or alternate executive directors representing large groups of poorer countries.
The second stage could involve a more fundamental overhaul of the bank’s shareholding structure to give rising economic powers more say. But Mr Zoellick said “voice needs to come with responsibilities”. His outgoing counterpart, Mr Rato, said countries had narrowed their differences on the proposed IMF shareholding reform.
World finance ministers are expected to agree this weekend that the basic votes of all countries should be more than doubled, and the new shareholding formula should take into account economic weight by purchasing power – not just market exchange rates.
Ministers are also expected to agree that the overall outcome should be a shift in voting power to the developing world, though some individual industrialised countries could also benefit. It is unclear whether they will be able to reach agreement on the total size of the shareholding or “quota” increase.
Change at the fund is “not a sprint but more like a marathon”, said Mr Rato, adding that he did not expect a final agreement on the issue at the weekend.
Confirming that financial market turbulence would dominate the agenda at the weekend’s meetings, Mr Rato said the recent havoc in credit markets “shows how important are global issues”. He said this importance “requires sometimes global solutions and certainly discussions at a global level”.
But he accepted that for the fund to remain effective – especially as it would have to live within much tighter budgets over the next three years – the global community must address the institution’s legitimacy and the quality of its advice.
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