Fast-growing emerging economies will get a louder voice at the International Monetary Fund under a landmark agreement clinched on Saturday that reflects a shift in global power from industrial countries.
Under the deal, more than 6 per cent of voting power at the Fund will shift to dynamic developing countries such as China, which will become the third-biggest member of the 187-strong Washington-based lender, IMF officials said.
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, according to a statement issued after a meeting of finance ministers from the Group of 20 leading economies.
As part of a wide-ranging package, the G20 also agreed to double the IMF's quotas, which determine how much each of the fund's 187 members contribute to the IMF and how much they may borrow from it.
The quotas currently total about $340 billion. The IMF staff had argued for a doubling, which it said would put the fund "in a strong position to forestall or cope with potential crises in the coming years".
The G20 said the reforms would make the Washington-based lender "more effective, credible and legitimate".
The reduction in Europe's representation is smaller than the United States was seeking.
However, Washington, which has a 17.67 per cent share of IMF quotas will retain its veto on the Fund's most important decisions. These will continue to require a super-majority vote of 85 per cent, according to IMF officials.
The governance reforms amount to an overhaul of the global economic order established when the Fund was set up after World War Two, prompting IMF Managing Director Dominique Strauss-Kahn to describe the agreement as historic.
"This makes for the biggest reform ever in the governance of the institution," he told reporters.
The G20 agreed a year ago to transfer at least 5 per cent of voting rights to developing countries such as India and Brazil whose clout within the Fund has not kept pace with their emergence as major engines of global growth.
China will leap over Germany, France and Britain in the Fund's power rankings, with its quota share rising to 6.19 per cent from less than 4 per cent. India will be in 8th spot, Russia in 9th and Brazil in 10th, according to the Russian finance ministry.
Together, the four -- known by the acronym BRICs -- will have 14.18 per cent of IMF quotas and emerging markets as a whole will have 42.29 per cent, the minister said.
"It was a long-expected reform that is really shifting the balance of power and making space for all economies, including emerging markets," said French Finance Minister Christine Lagarde.
Thrashing out which smaller European countries will give up their board seats is likely to take months. Belgium and the Netherlands are among the possible losers.
The fund's current five biggest members -- the United States, Japan, Germany, France and Britain -- not only have their own seats on the IMF board but are allowed to appoint their executive directors.
Under Saturday's deal, these directors will now have to be elected by the full board.
China, Russia and Saudi Arabia also have their own seats. The rest of the membership is divided into constituencies, which elect an executive director to vote for the group as a whole.
An example is the Netherlands, which represents 12 countries on the board. These groups vary in size, interests and distribution in voting power.
The Gyeongju Accord raises the prospect of more multi-member constituencies, depending on how Europe agrees to reduce its representation.
There are no set rules governing how countries group together. Individual countries can switch constituencies in search of more influence within a group or to form a more coherent regional alliance.
One possibility that has been floated would see some Gulf countries forming a constituency with Saudi Arabia.