UPDATE 3-Emerging economies gain clout as IMF doubles quotas

* G20 reaches historic deal to share out power at IMF

* China to jump to No. 3 spot in 187-strong Fund

* Dynamic emerging economies to get 6 pct more power

* G20 agrees to double IMF quotas
(Adds Russian and South Korean reaction)

By Luciana Lopez and Alan Wheatley

GYEONGJU, South Korea, Oct 23 (BestGrowthStock) – Fast-growing
emerging economies will get more clout at the International
Monetary Fund under a landmark agreement clinched on Saturday
that reflects a shift in global power from industrial countries.

Under the deal, more than 6 percent of voting shares at the
Fund will shift to dynamic developing countries such as China,
which will become the third-biggest member of the 187-strong
Washington-based lender.

Europe will give up two of the eight or nine seats it
controls at any given time on the IMF’s Executive Board, which
will continue to have 24 members, according to a statement issued
after a meeting of finance ministers from the Group of 20 leading
economies.

As part of a wide-ranging package, the G20 also agreed to
double the IMF’s quotas, which determine how much each country
contributes to the IMF and how much it may borrow from it.

The quotas currently total about $340 billion. The IMF staff
had argued for a doubling, which it said would put the fund “in a
strong position to forestall or cope with potential crises in the
coming years”.

The G20 said the reforms would make the Washington-based
lender “more effective, credible and legitimate”.

The governance reforms amount to an overhaul of the global
economic order established when the Fund was set up after World
War Two, prompting IMF Managing Director Dominique Strauss-Kahn
to describe the agreement as historic.

“This makes for the biggest reform ever in the governance of
the institution,” he told reporters.

The reduction in Europe’s representation is less than the
United States was seeking.

However, Washington, which has a 17.67 percent share of IMF
quotas will retain its veto on the Fund’s most important
decisions. These will continue to require a super-majority vote
of 85 percent, according to IMF officials.

HORSE-TRADING

The G20 agreed a year ago to transfer at least 5 percent of
voting rights to developing countries such as India and Brazil
whose clout within the Fund has not kept pace with their
emergence as major engines of global growth.

“It was a long-expected reform that is really shifting the
balance of power and making space for all economies, including
emerging markets,” said French Finance Minister Christine
Lagarde.

China will leapfrog Germany, France and Britain in the Fund’s
power rankings, with its quota share rising to 6.19 percent from
3.65 percent. India will be in 8th spot, Russia in 9th and Brazil
in 10th, according to the Russian finance ministry.

Together, the four — known by the acronym BRICs — will have
14.18 percent of IMF quotas.

Emerging markets as a whole will have a 42.29 percent share,
which the G20 said was likely to rise further following a
comprehensive review of the quota formula due by January 2013.

“This does not complete the reform process,” Russian Finance
Minister Alexei Kudrin said. “The position of the emerging market
countries is that this work should be continued.”

Thrashing out which smaller European countries will give up
their board seats is likely to take a year or more. The G20 set a
final deadline of October 2012. Belgium, Denmark, the Netherlands
and Switzerland are among the possible losers.

The fund’s current five biggest members — the United States,
Japan, Germany, France and Britain — have their own seats on the
IMF board and are allowed to appoint their executive directors.

Under Saturday’s deal, these directors will now have to be
elected by the full board.

China, Russia and Saudi Arabia also have their own seats. The
rest of the membership is divided into constituencies, which
elect an executive director to vote for the group as a whole.

Officials said the Gyeongju Accord could lead to more
multi-member constituencies, and a shake-up of existing ones,
depending on how Europe reduces its representation.

“What that essentially means is that all of these
multi-country seats will have to be reshuffled, so there will be
jockeying and coalition-forming,” said Hyun Song Shin, the top
G20 adviser to South Korea’s president.

There are no set rules governing how countries group
together. Individual countries can switch constituencies in
search of more influence within a group or to form a more
coherent regional alliance.
(For a Q+A on the IMF board: [ID:nN04141757])
(For more on the G20 meeting, click on [ID:nTOE69K01G])
(Additional reporting by Toni Vorobyova and David Chance;
Editing by Tomasz Janowski)

UPDATE 3-Emerging economies gain clout as IMF doubles quotas