Page last updated at 08:22 GMT, Sunday, 4 October 2009 09:22 UK

Pledge for more IMF help for poor

By Steve Schifferes
From the IMF meeting, Istanbul

IMF managing director Dominique Strauss-Kahn
Dominique Strauss-Kahn described the deal as historic

The French and British governments have announced a $4bn (£2.5bn) allocation to the International Monetary Fund to help poorer countries.

The money will go to the IMF's new loan facility to help countries which do not have enough money to pay for imports as a result of the economic crisis.

It will come from a $250bn (£157bn) allocation distributed a few weeks ago.

The money is essentially created by the IMF so, according to French ministers, there is no cost to the taxpayer.

The allocation of special drawing rights (SDRs) was agreed by the G20 summit in April.

IMF managing director Dominique Strauss-Kahn hailed the deal as "historic" and said he hoped other countries would follow suit.

He revealed that the IMF would have run out of money for its low income country loan facility - at zero interest rates - within months had France and Britain not come up with the money.

There should be no taxation without representation
Chancellor Alistair Darling

Both countries have given up about 20% of their extra SDR quota, the IMF said.

Meanwhile, the British Chancellor, Alistair Darling, has vowed to fight to keep Britain's seat at the IMF's top table.

Speaking to the BBC ahead of the IMF's annual meeting in Istanbul, he made it clear that giving up Britain's executive directorship was not on the cards.

Developing countries are pressing the IMF to reform itself to reflect new economic realities, such as the rise of China and India.

But the UK argues that its voting rights in the IMF are commensurate with its economic size, and that Britain's seat reflects the fact that it is a major contributor to the IMF's coffers.

"There should be no taxation without representation," the chancellor said.

IMF reform

The IMF is urgently discussing ways to make itself more representative of the new world order where developing countries make up nearly half of the world economy, but only have about one-third of the votes in the IMF.

Such reform is needed to convince countries like China that the world economy is being run in their interest as well as that of the rich countries - and thus they should undertake necessary reforms that could boost global growth and create jobs in rich countries.

Last week the G20 said that rich countries' quota in the IMF should be cut by 5% by 2011, but the mechanism for doing this has still not been agreed.

Some countries, including the US, have also proposed cutting the number of executive seats on the IMF from 24 to 12 as a way of proportionately increasing the voice of developing countries in IMF deliberations.

Mr Darling says he supports the idea of changing the overall distribution of votes at the IMF, but wants a discussion in the round, without unfairly targeting the UK seat.

Eight countries have seats as of right at the IMF: The US, UK, France, Germany, Japan, China, Saudi Arabia and Russia.

The UK says if any of these seats are to go, Russia and Saudi Arabia have much smaller economies than the UK.

Tobin tax

Mr Darling also poured cold water on the idea of a new worldwide tax on banks to dampen down speculation.

A request for the IMF to look at the so-called Tobin tax on speculation was included in the G20 communique in Pittsburgh last week at the behest of the French and German governments.

And on Saturday IMF managing director Mr Kahn said the IMF was setting up a working party under deputy managing director John Lipsky to look at the options for raising money by taxing the banks globally.

One option might be a compulsory insurance tax, similar to the deposit insurance protection levy in the UK, which would require banks to pay a central authority some insurance against losses in the case of a future financial crisis.

Mr Darling said he was not against the principle of such taxes, and indeed approved of the objective to try to find a way of damping down speculation by banks.

But he warned there were big practical and political obstacles to introducing such a tax, which would have to be on a worldwide basis to be effective (otherwise banks could just set subsidiaries in countries which did not have the tax).

The main problem was in getting all countries to agree a common proposal, and Mr Darling pointed out that the US, which has a blocking majority in the IMF, was implacably opposed to such a plan.

Nevertheless, the development charity Oxfam, which has been pressing for a Tobin tax along with other NGOs, says opinion is moving in their direction.

Max Lawson, of Oxfam, said: "It is great that the chancellor is thinking about this tax.

"It would be very popular as it would make the banks pay for the damage they caused and cost ordinary people nothing.

Steve Schifferes is professor of financial journalism at City University London

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