By Eric Teo Chu Cheow
The 61st session of the International Monetary Fund (IMF)/World
Bank was held in Singapore on September 19-20, and carried great
significance for the international financial system and the Asian
region.
The focus of the media has been on the much-awaited and crucial
reforms of the IMF, which were approved by 90.6 per cent of the
world's finance ministers. China, the Republic of Korea (ROK),
Mexico and Turkey had their voting rights or quotas raised with
immediate effect to reflect their increasing importance in the
world economy.
As a second stage of the reforms package, the IMF will begin
work on overhauling the calculation of quotas via a "simpler and
more transparent formula," to better reflect the relative weight of
the world's economies. The governors have asked that work on this
formula be completed within a year and that further adjustments be
implemented within two years.
A decision was also made to "at least double" the basic votes of
all countries, regardless of the size of their economies; this
should preserve the voting power of the poorest developing
countries within the IMF, which are also the principal borrowers
from the fund.
?
These reforms would undoubtedly help counter the grousing of
certain developing countries that the voting rights and quotas were
"skewed" in favor of developed countries, notably the European
economies. Before the increases made in Singapore, the quotas were
also reflective of the past rapport des forces of the world's
economies, without taking into the account the recent rise of
certain developing economies, like China, the ROK and India.
In fact, some Asian and Latin American countries have even
floated the idea of leaving the IMF to form their own regional
funds out of sheer frustration. Twenty-three of the 184 IMF member
countries voted against even these two-stage reforms. Among them
were Argentina, Brazil and India, who had earlier argued that these
reforms might not benefit all developing countries.
On the other hand, all the developed economies lost some of
their quotas notably the G-7, which by themselves commanded 45 per
cent of the quotas in the old system. There appear ultimately to
have been some justified re-adjustments to the international
financial system, as embodied by the IMF.
But more important, the Singapore meeting carries particular
significance for Asia, in three ways that could be clearly
discerned.
First, Singapore's geographic location made this meeting the
group's first to be held on the continent in nine years. It also
came nine years after the financial crisis that shook Asia up
tremendously and brought about fundamental economic, social and
political changes across the whole region.
There are clearly still some misgivings about the IMF, which
many Asians blamed in 1997-98 for having aggravated the crisis with
"erroneous" policies.
The Singapore meeting was also undoubtedly about Asia's
"re-emergence" or renaissance nine years after this crisis, as it
takes a much larger share of the world economy, led by China,
India, the ROK and ASEAN economies. Even Japan, the world's
second-largest economy, is recovering with credible growth and an
inflationary spiral after more than a decade of deflation. Without
doubt, the Singapore meeting will be remembered as the consecration
of an inevitable Asian comeback in world financial and economic
affairs.
Secondly, with the renaissance of Asia and Asian economies, the
spotlight was also turned to globalization as a necessary force for
growth and poverty alleviation, as highlighted by both Singapore
Prime Minister Lee Hsien-loong and World Bank President Paul
Wolfowitz at the opening of the session.
Globalization is a necessary prerequisite for the opening up of
economies, as Asia has found on its own path to economic growth and
prosperity. But there is also an accompanying need for drastic (but
necessary) reforms to economic management, a greater social
re-distribution (in order to temper the "unfair" effects of
globalization) and good corporate governance (in order to counter
moral hazards and corruption within).
IMF Director Rodriguez de Rato, however, placed emphasis on the
need to proceed with and implement the Doha Round of world trade
talks and fight protectionism worldwide, along with correcting
global imbalances by the big economic powers. The fear of high oil
prices and growing inflation impinging on future global economic
growth should also not be underestimated.
So, while the overall picture of the global economy is a rather
sound one for the coming two years, challenges and turbulences
abound on the horizon, and major powers will have to act together
resolutely in order to tackle them.
Lastly, there was also considerable debate over the future
oversight role of the IMF, from bilateral to multilateral
consultations with individual countries.
The United States, supported by European countries, called for
the IMF to have an "expanded role" over its 184 members, including
on the sensitive issue of exchange rates. China's position, as
expressed by Chinese Central Bank Governor Zhou Xiaochuan to the
Steering Committee over the weekend, was that the Fund's
surveillance should not focus solely on a country's exchange
rate.
More importantly, there appears to be widespread Asian support
for the Chinese position on its progressive re-evaluation of the
renminbi according to market forces, as US and European pressure
increases. Instead, Asian countries have become more and more
alarmed by the huge deficits chalked up by the American economy,
although they realize that their own economic growth is tied
closely to sound US consumption.
Also key to the debate in Singapore was the Asian grouse that
the United States and Europe have cornered the two financial
institutions, when the heads of the IMF and World Bank must
necessarily hail from Europe and the United States respectively,
leaving no room for an Asian to attain high office in either. They
have pointed to a Goldman Sachs report predicting that Asia will
contain three of the four top economies in the world by 2050 which
would be China, the United States, India and Japan, in that
order.
In Singapore, Asia staked its claim on the world financial
stage, in the hopes that further reforms would ultimately be made
in favor of Asia.
The author is a council member of the Singapore Institute
for International Affairs.
(China Daily September 22, 2006)
