BRIC not to boost IMF capital without voting rights

Emerging major economies Brazil, Russia, India and China have agreed not to invest money in recapitalising the International Monetary Fund without a mechanism that gives them more power 9voting rights) in the Fund, Brazil's finance minister Guido Mantega has said.

In the short term, however, provisional instruments could be used to capitalise the fund, Mantega said after a meeting with leaders of the BRIC group in Washington.

The comments come in the midst of talks among the 26 participants in the New Arrangements to Borrow (NAB) and representatives of other IMF member countries.

The NAB is a standing credit arrangement under which IMF member countries commit additional funds as and when required.

Under the NAB, IMF can muster supplementary resources of up to SDR34 billion ($50 billion) to cope with an impairment of the international monetary system or to deal with an exceptional situation that poses a threat to the stability of that system.

The meeting, a follow-up of the G-20 Leaders' London summit, was expected to finalise plans for recapitalisation of the IMF by nearly tripling its lendable resources to $750 billion.

The BRIC nations, however, want IMF quotas or voting rights recast in a way that reflect the economic and political clout of the emerging and other developing economies before any increase in the capital of the global lender.

IMF could also issue a bond to raise funds to boost its loanable funds if the emerging countries are allowed more say over the use of the money, they argue.

The chair of the NAB, Takehiko Nakao, said ''the group made good progress toward this goal and agreed to continue working with the aim of reaching agreement on an expanded and more flexible NAB.''

''There was broad agreement with the objectives of expanding and increasing the NAB by up to $500 billion. Many NAB current participants signaled their commitments to increasing the size of their credit arrangements, and others indicated their intention to give favorable consideration to such increases,'' an IMF release said.

''In addition, some other G-20 countries that are not currently NAB participants indicated their willingness to consider participating in this exercise, it added.

IMF, however, emphasised, ''the IMF is a quota-based institution and that the next quota review should be accelerated to be completed by January 2011.''

The G-20 Leaders had, at their London meeting, agreed that immediate financing from members of $250 billion would subsequently be incorporated into an expanded and more flexible NAB, increased by up to $500 billion.

''There was a strong sense that the expanded NAB is not a substitute for a quota increase,''  Nakao agreed.

Current NAB participants include: Australia, Austria, Banco Central de Chile, Belgium, Canada, Denmark, Deutsche Bundesbank, Finland, France, Hong Kong Monetary Authority, Italy, Japan, Korea, Kuwait, Luxembourg, Malaysia, the Netherlands, Norway, Saudi Arabia, Singapore, and Spain.

None of the huge BRIC economies are not members of the NAB while some smaller countries like Malaysia and Luxembourg find a place in the IMF decision making body.

The fact is the global downturn has hit Europe most. Advanced Europe is in deep recession and Eastern European economies are is floundering.

The downturn was triggered by a global financial crisis and a sharp drop in trade. The twin nature of the shock is particularly painful for Europe because of its deep integration in the world economy.

In some economies, such as Spain and Ireland, real estate busts are worsening the recession, as households and firms cut back demand and banks react to the rapid deterioration of their credit and asset portfolios by curbing lending.

The financial sector is at the heart of Europe's problems. It also holds the key to recovery. While progress has been made, Europe still needs to act more forcefully to restore financial confidence. This requires further recapitalisation and rescue of impaired assets.

But, like the US Fed and the Bank of Japan, there is still room for the European Central Bank for monetary easing.

The executive board of the International Monetary Fund (IMF) has also agreed to double the borrowing limits of the poorest countries under the `Poverty Reduction and Growth Facility (PRGF) and Exogenous Shocks Facility (ESF) arrangements to help low-income countries severely affected by the global economic downturn.

The board also began discussions on options for raising additional resources for concessional lending to allow the Fund to scale up its capacity to assist low-income countries over the medium term. These discussions stem from the proposals discussed recently, among others, by the leaders at the London G-20 summit.