THE Group of 20 nations struck a hard-fought agreement today on reforming the IMF to give a greater say to emerging nations such as China in the world's financial watchdog.
G20 finance ministers clinched the deal after years of efforts to make the Washington-based Fund better reflect a shift in global power - with the result that China, India and others will gain more weight at Europe's expense.
"It's the biggest reform ever in the governance of the IMF," IMF managing director Dominique Strauss-Kahn told reporters as the G20 bloc of advanced economies and emerging powers met in the South Korean city of Gyeongju.
Formed after World War II to remake the world financial system and prevent a 1930s-style Depression, the IMF has long been dominated by Western powers, but has faced growing calls to adapt.
"China supports the IMF quota reform, through which emerging countries will gain stronger representation and bigger says," China's central bank governor Zhou Xiaochuan said in Gyeongju, according to the Xinhua news agency.
The deal to reform the IMF's 24-member board of governors was thrashed out by G20 ministers ahead of a summit next month of national leaders in Seoul. The existing board will have to sign off on it at the start of November.
Mr Strauss-Kahn said Europe had agreed to give up two seats. About five percent of voting rights will be transferred, and Brazil, Russia, India and China will all be among the top 10 IMF shareholders.
Mr Strauss-Kahn said the agreement was an effective response to criticism that the IMF had grown outdated.
The G20 empowered the IMF to exercise greater vigilance over the spillover effects of national economic policies, on which it will prepare regular reports.
The United States is the dominant funder of the IMF, with Japan the second largest shareholder and Germany, France and Britain also substantial contributors.
But China, whose stunning economic transformation over the past three decades and resilience during the 2008-09 global crisis has shifted financial power eastwards, is now set to become a more high-profile player.
"This agreement recreates total legitimacy for the institution... The most important thing is that now the board represents the reality of the global economy," Mr Strauss-Kahn said.
French Finance Minister Christine Lagarde said there was "no bitterness" in Europe's agreement to give up some influence, pointing to overall success in efforts to rebalance the global economy.
"We arrived in Gyeongju full of apprehension and we leave full of expectation," she said.
The agreement came as the G20 strived to head off a "currency war" between big exporters such as China and deficit-ridden nations like the United States, which accuses Beijing of cheating in trade by keeping its currency cheap.
US Treasury Secretary Timothy Geithner made a pointed dig at China, which for four years barred the IMF from releasing a report critical of its currency policy before allowing a heavily hedged report to come out in July.
The IMF's ability to monitor nations "has been constrained by the reluctance of its members to expose themselves to a candid, independent, external assessment of the effects of their policies", Mr Geithner said.
With a greater say in the IMF's decision-making, emerging economies would also face "greater responsibilities" to police the world economy, he said.
British finance minister George Osborne noted that China would be the third most powerful vote-holder, and brushed aside concerns that the country might exploit its added influence to stymie adverse findings by the IMF.
"China is one of the big economic powerhouses of the world, and it would be rather odd to have an IMF that didn't have China sitting not just at the top table but at one of the top seats of the top table," he said.
The IMF itself came under pressure as the global crisis exposed governments' inability to respond in a world of highly complex financial instruments. It is working on more flexible credit lines to pre-empt new crises in member states.
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