IMF-World Bank İstanbul meeting to map out future course of action

The İstanbul gathering has been widely tagged by many pundits as the most important gathering in recent times as it offers the main platform for discussion for capitalism's top-notch actors. The expectations are that a better system will be created, clear from the faults that triggered the current troubles, now that signs are indicating that the worst economic crisis since the Great Depression has started to wither away. In this context, many experts are expecting that this year's summit will lay down the most basic pillars of a new global economic order that will be safe from the flaws of the current system.

From this point of view, it wouldn't be too assertive to claim that İstanbul will be the place of the rebirth of capitalism in accordance with the new conditions that were forced by the calamity of the still-persistent global economic crisis.

This year's meeting will make Turkey the only country to have hosted the Annual Meetings twice. After more than half a century, Turkey is once again providing a venue for the Annual Meetings of the IMF and the World Bank.

The event has brought together nearly 13,000 people, including central bankers, ministers of finance and development and private sector executives and academics. Among the basic topics to be dealt with in this year's occasion are the possible measures for a smooth escape from the hurdles of the crisis, a new world economic outlook, the eradication of poverty, economic development and the effectiveness of aid. IMF and World Bank officials will seek the views of its stakeholders on ways to strengthen the global financial system. Officials from both international organizations will also discuss the effectiveness of the loan programs by the IMF and the financial support of the World Bank.

Possible simplifications and boosting loan programs for poor countries will be a focal point for capitalism's key decision-makers. In addition, the attendees will scratch their heads to figure out what steps should be taken to enhance the effectiveness of these organizations while strengthening their legitimacy with universal membership.

The hopes of devising solutions are not entirely free from fears, though. The concerns regarding the failure of attempts as a result of waning attention while leading the global economy out of the crisis have been widely expressed by numerous experts so far -- for example, by IMF managing director Dominique Strauss-Kahn, World Bank President Robert Zoellick and Federal Reserve Chairman Ben Bernanke in their remarks last week. The most recent example was yesterday when the G30, a group of prominent bankers, policymakers and economists, called for sweeping reforms to the IMF, warning that the impetus for change would wane as fallout from the financial crisis fades.

IMF Managing Director Strauss-Kahn (2nd right) speaks at the Development Committee meeting on the sidelines of the IMF and World Bank summit.

In a report released on the sidelines of the IMF and World Bank meetings, the G30 said nations needed to seize the opportunity to change the way the fund is governed to reflect shifts in global economic power.

It said the fund should create a new governing body, which it dubbed "the IMF Council," to oversee the global lender's executive board. The council would have a membership that provides more weight to emerging economies such as China, India and Brazil. The group also proposed that the size of the IMF's board be reduced to 20 seats from 24 by halving the number of seats held by European countries, and called for quick action to give emerging economies more IMF voting power. "We are recommending that the revision of IMF quotas should be accelerated to realign existing shares with members' economic weights in the global economy," said Bank of Mexico governor and G30 member Guillermo Ortiz. "In the future quota adjustments would be better achieved through a regularized automatic process," he said. China had made a similar plea before the IMF's steering committee.

Turkey’s quota increasing

One important issue that will be on the table pertaining to Turkey is that its quota in the IMF is increasing to more than 1 percent, giving Turkey the opportunity of getting more financial aid at a lower cost. Turkey is currently enjoying a quota of 0.6 percent after it was increased from 0.45 percent during the Annual Meetings of the IMF-World Bank in 2006.

The quota increase means that Turkey will be able to draw more financial aid from the IMF, up to $6 billion, at an interest rate which is nearly 25 percent less than the current rate. Furthermore, the influence of Turkey on IMF policy decisions will also increase since quotas also determine the voting power of the countries.

Quotas, which are the amount of money each member country contributes to the IMF, are based on the country's size in the world economy and calculated according to gross national product (GNP), the openness of the economy, variables and reserves. The IMF's 24-member executive board conducts general quota reviews every five years. Any changes require an 85 percent majority. As Turkey's quota will be increased to more than 1 percent, more than several European Union member countries' quotas, its voting power will equal that of Brazil.

On Aug. 28, the IMF increased its total resources to over $250 billion and decided to allocate a $100 billion portion of these resources to extend to countries that are in need of financial resources.

Another critical point that adds to the significance of this year's gathering is that it will assure a more prominent role to the G-20 on global affairs. Many pundits are arguing nowadays that it is almost certain for Turkey to be touted among the core countries of the G-20 along with Brazil, Russia, China and India, which will also have a more active role in the global economy.

As regards the course of relations between Turkey and the IMF, especially the signing of a stand-by deal, the expectation that the sides will shake hands during this year's gathering has nearly died down. Officials from both parties, however, have said the talks will continue after the annual meetings and a stand-by deal is quite likely. Prime Minister Recep Tayip Erdoğan, for example, announced yesterday in an interview with the Wall Street Journal that the disputes over the IMF's demand of bestowing Revenues Administration (GİB) autonomy have been solved. “We want a new program with the IMF to kick in shortly,” he added.