The Group of 20 nations struck a hard-fought agreement on Saturday on reforming the IMF to give a greater say to emerging nations such as China in the world's financial watchdog.
G20 finance ministers clinched the deal after years of efforts to make the Washington-based Fund better reflect a shift in global power --with the result that China, India and others will gain more weight at Europe's expense.
“It's the biggest reform ever in the governance of the IMF,” IMF managing director Dominique Strauss-Kahn told reporters as the G20 bloc of advanced economies and emerging powers met in Gyeongju.
Formed after World War 2 to remake the world financial system and prevent a 1930s-style Depression, the IMF has long been dominated by Western powers, but has faced growing calls to adapt.
“China supports the IMF quota reform, through which emerging countries will gain stronger representation and bigger says,” China's central bank governor Zhou Xiaochuan said in Gyeongju, according to the Xinhua news agency.
The deal to reform the IMF's 24-member board of governors was thrashed out by G20 ministers ahead of a summit next month of national leaders in Seoul. The existing board will have to sign off on it at the start of November.
Strauss-Kahn said Europe had agreed to give up two seats. About 5% of voting rights will be transferred, and Brazil, Russia, India and China will all be among the top 10 IMF shareholders. Strauss-Kahn said the agreement was an effective response to criticism that the IMF had grown outdated.
The G20 empowered the IMF to exercise greater vigilance over the spillover effects of national economic policies, on which it will prepare regular reports.
The United States is the dominant funder of the IMF, with Japan the second largest shareholder and Germany, France and Britain also substantial contributors. But China, whose stunning economic transformation over the past three decades, is now set to become a more high-profile player.
“This agreement recreates total legitimacy for the institution... The most important thing is that now the board represents the reality of the global economy,” said Strauss-Kahn.