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New powers for IMF

WASHINGTON -- The International Monetary Fund won new powers to

police the world economy after its 184 member countries endorsed a

new framework to monitor how the economic policies of one country

affects others.

The countries, represented by finance ministers or central bank

governors, also agreed that some emerging economies needed more say

in IMF decision-making, and a proposal for ad hoc increases in their

voting shares could become a reality by the next IMF meetings in

September.

"We resolve to make the IMF more fit for purpose in a global economy

and more able to address challenges that are quite different from

those of 1945, when the IMF was created," Chancellor Gordon Brown,

who also chairs the IMF's policy-setting committee, told a news

conference.

"The IMF should be more able to address global questions with

multilateral surveillance," Brown said.

The International Monetary and Financial Committee, or IMFC, said

IMF surveillance would focus on spillovers and links between

countries' economic policies and reaffirm their monetary, fiscal and

exchange rates frameworks.

IMF Managing Director Rodrigo Rato will have the authority to bring

nations together on an ad hoc basis to thrash out any economic

misalignments based on IMF analyses.

Officials said this would create a new forum that better reflected

the rise of Asia in the global economy and could possibly replace

bodies like the Group of Seven industrial countries, which some say

can no longer call all the shots.

One of the problems facing the G7 is that major economic players

like China are not part of the club.

Member countries welcomed enhanced IMF monitoring of exchange rates

that will be extended to include major emerging markets, but several

remarked they were hesitant about the IMF publishing analyses on

theoretical fair value currency rates because it was market

sensitive.

China, whose tightly managed currency is a concern to the G7, said

this did not mean the IMF should interfere in how countries manage

their exchange rates.

"Fund surveillance should comply with the objective of promoting

exchange and financial stability and respect the autonomy as to

exchange rate systems that is granted to all (IMF) members," China's

Governor Zhou Xiaochuan told the IMF committee.

Addressing reporters, the IMF's Rato said the committee gave him a

clear mandate to propose changes to the voting shares, or quotas, of

some countries by September.

"I have spoken several times about the need for increases in voting

power for some countries, including a number of emerging market

economies, to ensure they have a role in the fund's decision-making

process that accords with their increased importance in the world

economy," he said.

A proposal he submitted to the IMFC would give ad hoc increases to a

small number of countries like China, South Korea, Mexico and

Turkey. Other nations that could also possibly qualify include

Malaysia, Thailand and Singapore.

But tensions remain between industrial and developing countries over

how to reallocate voting power beyond initial increases in the

quotas for some emerging nations.

The Group of 24 finance ministers for developing countries from

Asia, Africa and Latin America on Friday called for a more

comprehensive package with timelines to greater representation,

fearing changes could stall after any initial increases.

They said it was "imperative" that a concrete proposal for changes

be worked out by the next IMF meeting in Singapore in September,

which should include a new formula to calculate quotas based on

purchasing power parity of a country and not gross domestic product

as is currently the case.

U.S. Treasury Secretary John Snow said on Saturday he would support

the ad hoc increase "if it is credibly linked as a down payment on

near-term fundamental reform," like those to increase the fund's

watchdog role on currency issues.

Although it is generally recognised that China's quotas do not

properly reflect its global economic weight, an increase in its

voting share may be controversial in light of proposed U.S.

legislation threatening a veto of such a move in the absence of

Chinese currency reforms.

German Finance Minister Peer Steinbrueck called for "equal

treatment," saying some European countries -- like Germany -- were

also underrepresented according to quota calculations.

According to calculations of the current quota system countries like

Britain, Ireland, Spain, the Netherlands, and Sweden are also

underrepresented.

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