SINGAPORE -- International Monetary Fund members approved yesterday the first stage of a voting overhaul to give China, South Korea, Turkey and Mexico a bigger voice at the fund to reflect their growing influence in the global economy.
In a poll that won 90.6 percent support, the IMF said its members agreed to increase votes for the four countries in the face of opposition from some Latin American and Asian nations.
"The state of the world has changed very rapidly over the past 20 years and it's only right that the institutions that manage it change to reflect that," said Paul Donovan, senior global economist at UBS AG in London.
The fund may find it harder to get approval for the planned second stage of the overhaul, involving a more sweeping change in the way votes are distributed among its 184 members.
The Netherlands and Belgium would see their influence decline if voting power, also known as quotas, were determined mainly by an economy's size. Argentina, Brazil, Egypt and India are concerned their role in the fund won't reflect their economies.
"The current quotas, based on a flawed formula, do not reflect the relative economic strength of countries," India's Finance Minister Palaniappan Chidambaram told the IMF's steering committee in Singapore yesterday. "The need of the hour is to evolve a new, simple, transparent and linear quota formula."
European countries support the thrust of reforms sought by the IMF's managing director, Rodrigo de Rato of Spain. But some of them have called for a nation's economic "openness" to be part of the voting formula, as well as domestic output and other unspecified variables. The United States has endorsed de Rato's proposals.
The increase in voting rights for the four developing nations is viewed by the IMF as a stopgap measure while the fund works on a broader realignment of quotas. Under the current system, Belgium, with a $372 billion economy, has more clout than Brazil, India, Mexico or South Korea, which have economies that are at least 70 percent bigger.
Some nations, while supporting increased votes for the four developing economies, said they have reservations about the second stage. The fund should establish a formula before voting on it, according to a letter of dissent signed by finance ministers from Argentina, Brazil, Egypt and India.
U.S. Treasury Secretary Henry M. Paulson Jr., who supports the voting overhaul, called on the IMF to settle on a system that emphasizes gross domestic product, the value of goods and services produced by each country.
"We challenge other industrial countries to join the U.S. in forgoing higher voting shares," Paulson said in a statement yesterday. Paulson repeated that the United States, which represents about a third of the world economy, wants no more than its current 17 percent share of IMF votes.
Separately, China and Japan opposed calls by Paulson for the IMF to police "misaligned" currencies, saying the role is outside its authority and wouldn't solve global trade imbalances.