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World: A New Hope For Equity For 38 IMF Members

  • Robert Lyle

Washington, 10 September 1997 (RFE/RL) - The annual meeting of the International Monetary Fund (IMF) in Hong Kong, China later this month may at last be the time when Russia and 37 other nations -- mostly in East and Central Europe and Central Asia -- finally get their fair share of the equity of the global organization.

At the moment, while they are fully participating members of the IMF, these 38 countries have never been given any of the fund's internal currency, known as Special Drawing Rights or SDRs.

When the IMF was founded at the Bretton Woods conference in the late 1940's, the then-Soviet Union and most of its allies in Eastern Europe refused to join or pulled out shortly after it began in a communist desire to avoid contamination from western economic ideas.

They were not present when the fund made the initial allocation of SDRs to member nations nor when in subsequent years new amounts were created to keep basic equity among the members.

But since the last allocation was completed in 1981, no new SDRs have been created. So any country which joined the fund since 1970 has never received a piece of the fund's basic equity.

For years, fund management has pushed for an equity allocation, but the richer nations have steadfastly refused. Even when the policy-making Interim Committee in the autumn of 1996 told the fund's Board of Executive Directors to bring a specific proposal to the spring meetings, the U.S. was only willing to accept half the level suggested.

IMF Managing Director Michel Camdessus proposed creation of 26,600 million SDRs, to be distributed to all 181 member nations so that each country would have a proportional amount.

Supported by a large majority of the committee, Camdessus scaled back the proposal to 22,400 million SDRs (about $31 billion worth) to be distributed so that each member nations would have SDRs equal to 30 percent of its individual quota, or membership fee.

However, a small group of the richest nations, led by the U.S., refused to approve an allocation of more than 20,000 million SDRs (around $28 billion.)

The U.S., with some support from France, Great Britain and sometimes Germany, was able to block the move because it would require the approval of more than 80 percent of the quotas in the fund. The U.S., with 17.78 percent of the quotas, needs only one other large member to effectively veto such major proposals.

Still, fund officials were not willing to give up and in discussions in recent days in Washington, the Executive Directors have come to virtual agreement on a compromise allocation of 21,400 million SDRs (nearly $29 billion).

According to sources, under this plan each member nation would end up with SDRs worth just over 29.30 percent of its quota. So in the case of Russia, for example, Moscow would receive an allocation of around 1,250 million SDRs (about $1.7 billion worth.)

The IMF's First Deputy Managing Director, Stanley Fischer, says there is a "growing board consensus on this issue" and that while it is "not quite finalized," he expects to see full agreement by the meeting in Hong Kong.

SDRs are only used within the fund and not having an allocation has not prevented any member from fully participating, including drawing loans. But SDRs are also usable as a sort of overdraft facility for member countries between central banks and it is for this function that most nations want their fair share.