By Lesley Wroughton

WASHINGTON, Oct 22 (Reuters) - Monumental persuasion is needed to convince the United States and western Europe to give up their dominance of global institutions, such as the IMF, South Africa's finance minister said late on Sunday.

Trevor Manuel said there was overall agreement that voting power in the International Monetary Fund needed to be adjusted to reflect the rising influence of countries such as China and India.

But making the changes was tougher, he said in an interview with Reuters, adding it was bizarre that the United States would want to retain the lion's share of decision-making power in an institution it has never had to use.

"Nobody can quite take the big steps necessary and sometimes it's because finance ministers and central bank governors need political air cover which isn't forthcoming," Manuel said on the sidelines of an IMF and World Bank meeting in Washington.

"You're telling these countries that have acquired these rights that in the interests of broader democracy they got to give it up, and that's a problem we run into, which is why it will require monumental persuasion," he said.

As chair this year of the Group of 20 industrialized and developing countries, South Africa had to "drive this thing with the understanding that changes will be incremental but holding out for the maximum," Manuel said.

"We have to maintain the pressure," said Manuel ahead of the meeting of the next G20 in Cape Town in November, where IMF reforms will be high on the agenda.

But Manuel said even among developing countries ,which would benefit the most from an overhaul of the IMF's voting structure, there was also no agreement on the steps needed for change.

"Some would hold out until there is a greater sense of victory and others would ask that we take a more incremental approach," he said.

STRUGGLE

IMF members have struggled for more than a year to agree on a new formula for distributing voting power more equally.

The IMF, which was central in fighting global financial crises in the 1980s and 1990s, is now gearing itself more towards policing the world's economies since fewer countries are turning to it for emergency loans.

Manuel agreed there was a need to rethink the role of the IMF but said strong economic growth in the developing world did not mean financial crises requiring IMF emergency loans could never happen again.

"It would be crazy to burn your umbrella because the sun is shining," he said.

Manuel said IMF monitoring of members' economies was important, but it needed to be applied even-handedly.

He noted criticism that the IMF did not sound the warning bells loud enough over the crisis that developed in the U.S. subprime mortgage market, which sparked turmoil in credit markets.

"The United States shouldn't be able to cock a snook at the IMF," Manuel said, adding that the United States' refusal to accept advice from the IMF in itself threw into question the fund's relevance.

BIZARRE

Last fall, the IMF's 185 member countries endorsed a plan that increased the voting power of China, Mexico, Turkey and South Korea with promises of a second round of reforms to be completed in 2008 based on a new voting formula.

Together with Australia and Brazil, South Africa helped craft a proposal for discussion at the IMF meetings this weekend, which raised the voting power of under-represented emerging economies, while also strengthening positions of poor countries.

The IMF's steering committee on Saturday proposed an overall increase of member countries' votes in the order of 10 percent and at least a doubling of so-called basic votes to benefit lesser-developed nations.

While some countries said the decision represented progress, others in Europe said developing countries' demands were stronger than ever and an agreement was a long way off.

Manuel said fears of developed countries over China, which could eclipse France and Britain in a rebalancing, were "irrational".

China's growing economic influence should also be recognized in forums such as the Group of Seven, he added. The G7 consists of the United States, Britain, Italy, France, Japan, Germany and Canada.

AlertNet news is provided by