THE 61st session of the International Monetary Fund (IMF)/World Bank, held in Singapore on Sept 19-20, 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, approved by 90.6% of the world's finance ministers. China, the Republic of Korea (ROK, or South Korea), Mexico and Turkey had their voting rights or quotas raised with immediate effect to reflect their increasing importance in the world economy.
The IMF would also work on overhauling the calculation of quotas with a simpler and more transparent formula, to better reflect the relative weight of the world's economies. The governors asked that work on this formula be completed in a year, with further adjustments implemented in 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 in the IMF, which are also the principal borrowers from the fund.
These reforms would undoubtedly help counter the complaints of developing countries that the voting rights and quotas were skewed in favour of developed countries, notably the European economies. Before the increases made in Singapore, the quotas also did not take into account the rise of developing economies like China, the ROK and India.
Some Asian and Latin American countries 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 Argentina, Brazil and India, arguing that these reforms might not benefit all developing countries.
All the developed economies also lost some of their quotas, notably G-7 members, which by themselves commanded 45% 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 is of special significance for Asia in three clear ways.
First, this meeting was the IMF'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 region.
This meeting was also undoubtedly about Asia's re-emergence nine years after the 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.
Secondly, with the renaissance of Asian economies, the spotlight was also turned on globalisation as a force for growth and poverty alleviation. Although globalisation is a necessary prerequisite for opening up economies, there is also an accompanying need for drastic reforms in economic management, greater social redistribution and good corporate governance.
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 resolutely and together to tackle them.
Lastly, there was also considerable debate over the IMFs future oversight role, 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 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 US economy, although they realise 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 pointed to a Goldman Sachs report predicting that Asia would contain three of the four top economies in the world by 2050: China, the United States, India and Japan, in that order. Asia has staked its claim on the world financial stage, in hopes that further reforms would ultimately be made in favour of Asia. China Daily / Asia News Network
The writer is a council member of the Singapore Institute for International Affairs.
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