Developed Countries Resist IMF Reform: Russia's Kudrin
Monday, 27 April 2009

Developed countries are resisting the reform of the International Monetary Fund's (IMF) representation quotas, Russia's Finance Minister Alexei Kudrin said on Sunday.

Emerging nations, led by Brazil, Russia, India and China -- known as BRIC -- want to increase their representation in the IMF, aiming for an agreement on reforms by January 2011.

"We already meet cool attitude and even resistance (to reform plans)," Kudrin told reporters in Washington. "The leading countries are not in a hurry ... This was the main discussion, the nerve of the IMF meeting."

Kudrin said emerging nations are concerned that the current discussion about emergency funding for the IMF could put quota reform on the back burner.

He singled out smaller European countries, which are likely to lose the most if the quota system is reformed, as the main culprits.

"If such mechanisms (of emergency funding) will have a permanent nature, they may make the IMF's capitalisation less actual," Kudrin said.

He said developed nations are trying to incorporate as many temporary instruments as possible, including bilateral loans and bonds, into the New Agreement to Borrow, an existing multilateral arrangement, to make them more permanent.

Russia has 2.7 percent of the IMF votes, and is unlikely to see its quota increased even under a proposed reform, China holds 3.7 percent, Brazil 1.4 percent and India 1.9 percent.


In comparison, the United States holds 17.1 percent of the votes, the euro zone countries have 32.4 percent and Switzerland holds 1.6 percent. This ensures the dominance of developed nations in the IMF decision making.

The BRIC countries also feature prominently on the list of the world's savers with China running the biggest foreign currency reserves, Russia the third largest, India the fourth and Brazil the seventh. Most of the reserves are held in dollars and euros.

BRIC's reluctance to contribute money to the IMF unless they have more influence is an important caveat as the Fund is about $150 billion short of a $500 billion funding pledge from the G20.

Kudrin said Russia was ready to invest some of its $385 billion forex reserves -- the world's third largest -- in IMF securities but needed to make sure that they were liquid enough for Russia to get its money back quickly.

Russia, in the midst of a worst economic downturn in a decade, has divested from riskier instruments and now keeps its reserves in mostly liquid sovereign paper so the money is readily available in case of emergency.

"We are interested to invest our reserves in instruments similar to sovereign paper. For us it is important to be able to sell it and receive cash at any moment," Kudrin said, adding that Russia was less interested in lending to the IMF directly.

He said the currency of denomination for the bond has not yet been decided and the bond would not necessarily be denominated in the IMF's Special Drawing Rights (SDRs).


He said the bond should trade in secondary markets and one of the proposals under discussion was an option to sell the bond back to the IMF to make it a safer and liquid investment.

Kudrin said that despite the possibility of Russia's 2009 budget deficit exceeding the planned 7.4 percent of the gross domestic product (GDP) and relatively favourable external conditions, Russia was not considering a Eurobond issue this year.

He said that official interest rates, cut by the central bank last week to encourage lending to enterprises, could go up again if the bigger deficit, covered by printing roubles, leads to accelerated inflation.

"They can be slashed today, raised tomorrow. Interest rates are not forever. This is the way the central bank is going to act," Kudrin said.


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