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.
The reduction in Europe's representation is less than the United States was seeking.
In return, Washington, which has a 17.67 per cent share of IMF quotas, or membership subscriptions, 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.
"This makes for the biggest reform ever in the governance of the institution," IMF Managing Director Dominique Strauss-Kahn told reporters.
Strauss-Kahn helped broker the deal during a meeting of finance ministers and central bank governors of the Group of 20 leading economies.
The G20 agreed a year ago to shift 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.
But a breakthrough had not been expected at the Gyeongju talks, where ministers have focused their efforts on finding a formula for more stable economic growth and exchange rates.
The governance reform, which could take up to a year to finalise, amounts to an overhaul of the global economic order established when the IMF was set up after World War Two.
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 on the board. 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.
While each country has an individual share of votes relative to its economic size, the constituency chair wields the collective vote of all of its members.
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.