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Revising IMF quotas crucial to China

By Wu Chong (China Daily)
Updated: 2010-06-28 07:05

TORONTO - China said on Saturday that it expects to finalize its consultations on the International Monetary Fund (IMF)'s quota reform with G20 partners before the G20 Seoul summit in November.

"It's our belief that the reform of the IMF, particularly its quota reform, is critical," said Zhang Tao, director-general of the international department with the People's Bank of China (PBOC), at a news briefing of the Chinese delegation at the G20 summit. "I believe we should build on the quota reform of the IMF to comprehensively and fully advance its overall governance and functional reform."

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China believes that emerging economies should play an increasing role in the IMF and the World Bank, so both institutions should assign more voting rights to emerging economies.

Currently, developing countries hold 43 percent of the voting rights in the IMF and 44 percent in the World Bank, while developed countries have the majority.

China and other emerging countries, including Brazil and India, therefore propose that the number of voting rights should be equalized.

Upon the request, the G20 Pittsburgh summit in September last year ended with the participants agreeing to shift the IMF quota share to "dynamic emerging markets and developing countries of at least 5 percent from over-represented countries to under-represented countries using the current quota formula as the basis" before January 2011.

Earlier this year, Governor Zhou Xiaochuan of the PBOC urged the IMF to accelerate the process of shifting quotas. "The quota structure is the core issue in fund governance. The severe under-representation of emerging market and developing countries in the IMF seriously affects the fund's legitimacy and effectiveness, and must be corrected," Zhou said at the spring meeting of the IMF and the World Bank in Washington.

The IMF reform is one of the results of the severe financial crisis that struck the majority of the world's economies since late 2008. Together, the issue of bank levies has also been heavily discussed at the ongoing summit.

A draft of the G20 communique leaked to Reuters is reported to include a stipulation that countries "have the option to pursue a bank levy" to fund future rescue deals.

China has held the same stance that there is "no one-size-fits-all policy" on this issue, according to Zheng Xiaosong, director-general of the international department with China's Ministry of Finance.

"A bank levy is not the only effective way to reduce the risks of financial institutions and contain a financial crisis," Zheng said. "The best way to prevent a repeat of any financial crisis in the years to come is to raise the regulatory standard and further improve the regulatory system."

China is not opposed to any discussion of the basic principles of a bank levy in the context of the G20 summit, he said, though it is up to each individual country to decide whether or how to introduce the policy, he said.

As for the split opinions about stimulus spending between the United States and Europe, China believes that the "different national economic conditions" of these countries have resulted in their taking different measures and responses, according to Ma Xin, director-general of the department of international cooperation with the National Development and Reform Commission.