UK Opposes Plan for Developing Nations to Have More Say at Imf

Britain and France are opposing plans to give leading developing countries more power at the International Monetary Fund amid accusations that they are seeking to protect their privileged status at the Washington-based institution.

Despite publicly supporting the need to make the IMF more representative of the new global economy, sources said London and Paris were strongly opposing a blueprint for reform.

Under plans backed by the US, either Britain or France could be replaced by China as one of the five most powerful countries at the fund and the influence they have wielded for more than 60 years would be diluted.

Only Britain, France the US, Germany and Japan have the right to appoint their own executive director to the IMF's board. The other 19 directors have to represent countries that do not have their own board member.

Under new proposals, however, the size of a country's economy - the basis for voting rights at the fund - would be adjusted by purchasing power parities (PPP), a device that adjusts GDP to take account of prices around the world.

Since a pound buys more in China or India than it does in London or Paris, the result would be to increase the size of the economies of poorer countries. Ranjit Banerjee, India's policy adviser at the IMF, said Britain and France had discovered they had the most to lose by the plan to apportion voting rights on the basis of adjusted GDP.

"The UK and France realised that they would get hit the most," Mr Banerjee said. "Under the proposed reform they could see China overtaking them in terms of the size of its economy".

He said Britain and France had voiced objections to using PPPs to assess the size of economies at two recent meetings - one in Washington and one in London - and had persuaded other European countries to support the blocking strategy.

The UK and France are proposing that the pecking order at the fund remain unchanged and that reform be phased in slowly.

Mr Banerjee said the leading developing countries were prepared to compromise provided Europe accept a "modicum of PPP" in the new voting formula. "We are open to compromise, but the spirit of compromise on the part of the Europeans is slowly drying up. Reciprocity is not there on the part of the major European players, which is disturbing. As things stand, the UK and France are trying to block reform.

"France won't accept a lower quota than the UK. Who will be fifth; it's very contentious." The British Treasury was dismissive of the idea that the IMF balance of power should be based on whether a haircut cost more in Washington than in London.

A spokesman said: "We are fully committed to reform of the quota system in line with the agreement in Singapore. Reform should properly reflect countries' actual weight in the world economy. We have concerns about a formula based on PPPs given that the fund is a financial institution that operates on actual exchange rates where countries contribute and borrow from the fund on that basis."

Rodrigo de Rato, the IMF's managing director, said yesterday that it was understandable countries should have their own positions on reform of the institution and that he hoped there would be consensus on the way forward by the time of the fund's annual meeting in October.

Peter Chowla, a policy officer at the Bretton Woods Project thinktank that specialises in the fund and the World Bank, said: "We find it disappointing that despite the rhetoric about increasing the shares of developing and low income countries, the British government seems opposed to any moves that would bring about a change in voting rights at the fund."

"What the IMF really needs is a complete governance reform that fundamentally changes the power structure."