Brazil, Russia, India, China offer IMF financial aid for wider policy role

A PUSH by Brazil, Russia, India and China to have the International Monetary Fund issue its first bonds has become part of a strategy by developing nations to gain a bigger say at the IMF.

At the fund's annual meeting for the northern spring, the four countries said they were willing to contribute to a previously announced quadrupling of IMF resources to $US1 trillion ($1.38 trillion), mostly by purchasing bonds.

The bonds would be denominated in the IMF's quasi currency, called special drawing rights, have a maturity of about one year, and be sold only to central banks. If the so called nations of BRIC have their way, the bonds could also be sold on secondary markets to make the instruments more liquid.

The proposed purchase is meant to send a double-message, said Eswar Prasad, a former IMF official who remains close with the Chinese and Indian officials.

The countries of BRIC are willing to contribute to the IMF, but they won't contribute heavily to longer-term fund resources until the world body increases their voting shares substantially. "They don't want to get locked into providing more money until they get their (shares) increased," Mr Prasad said.

The issue of voting rights and IMF bonds were at the forefront of the group’s meetings, where discussions also explored the state of the global economy and providing support for low-income countries.

In a statement on Saturday to the IMF's main advisory committee, Brazilian Finance Minister Guido Mantega said the world body "still has to address its original sin: its democratic deficit".

Egyptian Finance Minister Youssef Boutros-Ghali, the chairman of the advisory group, said in an interview that he wanted to get national leaders involved in remaking the IMF voting system.

IMF voting shares are supposed to generally reflect global economic power, but now give far greater weight to countries that were powerful after World War II, especially smaller European ones.

In March 2008, after lengthy negotiations, the IMF announced that developing nations' voting shares would increase by 5.4 percentage points and the body said it revisit the issue in 2013.

For Brazil, that meant its voting share increased by 0.3 points to 1.7 per cent. China's voting share was boosted 0.9 percentage points to 3.8 per cent. Even those increases were not yet in effect. (The voting rights for Belgium and the Netherlands equal China's, even though China is a much larger economy.)

The IMF now is committed to looking into the issue next year. But the BRIC countries believe the IMF's need for funds gives them additional leverage.

At the summit of leaders of the Group of 20 industrialised and developing nations early this month, British Prime Minister Gordon Brown said China was ready to lend the IMF $US40 billion. But China never committed to that amount and is now balking, said IMF and other finance officials.

Instead, the Chinese are looking at contributing perhaps half that much, which would be in line with its voting share, and providing additional money through bond purchases, which are seen as less significant by the IMF because they are for a limited time; Brazil, India and Russia were also pushing bond purchases.

The US generally backs the BRIC effort to get greater representation. But some US officials believe the BRIC bond strategy could backfire because they would be seen to have played politics rather than contributing fully to the IMF during an economic crisis.

Indeed, Western European countries, which have pledged $US100 billion to the IMF, were now considering boosting that amount to $US160 billion, one official said, in part to help justify Europe's bigger stake in the IMF.

Nearly every IMF plan to revamp the voting structure foresees a smaller role for European counties, especially smaller ones like Belgium and the Netherlands. In an interview with Reuters, Belgian Finance Minister Didier Reynders said that the country should keep its seat on the IMF's 24-member governing board because European countries contributed heavily to the IMF.