By Eric Teo Chu Cheow

The 61st session of the International Monetary Fund (IMF)/World Bank was held in Singapore on September 19-20, and carried great significance for the international financial system and the Asian region.

The focus of the media has been on the much-awaited and crucial reforms of the IMF, which were approved by 90.6 per cent of the world's finance ministers. China, the Republic of Korea (ROK), Mexico and Turkey had their voting rights or quotas raised with immediate effect to reflect their increasing importance in the world economy.

As a second stage of the reforms package, the IMF will begin work on overhauling the calculation of quotas via a "simpler and more transparent formula," to better reflect the relative weight of the world's economies. The governors have asked that work on this formula be completed within a year and that further adjustments be implemented within two years.

A decision was also made to "at least double" the basic votes of all countries, regardless of the size of their economies; this should preserve the voting power of the poorest developing countries within the IMF, which are also the principal borrowers from the fund.
 
These reforms would undoubtedly help counter the grousing of certain developing countries that the voting rights and quotas were "skewed" in favor of developed countries, notably the European economies. Before the increases made in Singapore, the quotas were also reflective of the past rapport des forces of the world's economies, without taking into the account the recent rise of certain developing economies, like China, the ROK and India.

In fact, some Asian and Latin American countries have even floated the idea of leaving the IMF to form their own regional funds out of sheer frustration. Twenty-three of the 184 IMF member countries voted against even these two-stage reforms. Among them were Argentina, Brazil and India, who had earlier argued that these reforms might not benefit all developing countries.

On the other hand, all the developed economies lost some of their quotas notably the G-7, which by themselves commanded 45 per cent of the quotas in the old system. There appear ultimately to have been some justified re-adjustments to the international financial system, as embodied by the IMF.

But more important, the Singapore meeting carries particular significance for Asia, in three ways that could be clearly discerned.

First, Singapore's geographic location made this meeting the group's first to be held on the continent in nine years. It also came nine years after the financial crisis that shook Asia up tremendously and brought about fundamental economic, social and political changes across the whole region.

There are clearly still some misgivings about the IMF, which many Asians blamed in 1997-98 for having aggravated the crisis with "erroneous" policies.

The Singapore meeting was also undoubtedly about Asia's "re-emergence" or renaissance nine years after this crisis, as it takes a much larger share of the world economy, led by China, India, the ROK and ASEAN economies. Even Japan, the world's second-largest economy, is recovering with credible growth and an inflationary spiral after more than a decade of deflation. Without doubt, the Singapore meeting will be remembered as the consecration of an inevitable Asian comeback in world financial and economic affairs.

Secondly, with the renaissance of Asia and Asian economies, the spotlight was also turned to globalization as a necessary force for growth and poverty alleviation, as highlighted by both Singapore Prime Minister Lee Hsien-loong and World Bank President Paul Wolfowitz at the opening of the session.

Globalization is a necessary prerequisite for the opening up of economies, as Asia has found on its own path to economic growth and prosperity. But there is also an accompanying need for drastic (but necessary) reforms to economic management, a greater social re-distribution (in order to temper the "unfair" effects of globalization) and good corporate governance (in order to counter moral hazards and corruption within).

IMF Director Rodriguez de Rato, however, placed emphasis on the need to proceed with and implement the Doha Round of world trade talks and fight protectionism worldwide, along with correcting global imbalances by the big economic powers. The fear of high oil prices and growing inflation impinging on future global economic growth should also not be underestimated.

So, while the overall picture of the global economy is a rather sound one for the coming two years, challenges and turbulences abound on the horizon, and major powers will have to act together resolutely in order to tackle them.

Lastly, there was also considerable debate over the future oversight role of the IMF, from bilateral to multilateral consultations with individual countries.

The United States, supported by European countries, called for the IMF to have an "expanded role" over its 184 members, including on the sensitive issue of exchange rates. China's position, as expressed by Chinese Central Bank Governor Zhou Xiaochuan to the Steering Committee over the weekend, was that the Fund's surveillance should not focus solely on a country's exchange rate.

More importantly, there appears to be widespread Asian support for the Chinese position on its progressive re-evaluation of the renminbi according to market forces, as US and European pressure increases. Instead, Asian countries have become more and more alarmed by the huge deficits chalked up by the American economy, although they realize that their own economic growth is tied closely to sound US consumption.

Also key to the debate in Singapore was the Asian grouse that the United States and Europe have cornered the two financial institutions, when the heads of the IMF and World Bank must necessarily hail from Europe and the United States respectively, leaving no room for an Asian to attain high office in either. They have pointed to a Goldman Sachs report predicting that Asia will contain three of the four top economies in the world by 2050 which would be China, the United States, India and Japan, in that order.

In Singapore, Asia staked its claim on the world financial stage, in the hopes that further reforms would ultimately be made in favor of Asia.

The author is a council member of the Singapore Institute for International Affairs.

(China Daily September 22, 2006)