Global IssuesIMF Criticised for 'Fancy Footwork' over Real Reforms
In what the International Monetary Fund is calling a historic moment, the institution approved long-awaited reforms Friday that would shift some decision-making weight to emerging economies. Some NGOs, however, do not see the reform as nearly that momentous.
The most significant aspect of the reforms moves China up to become the country with the third-greatest say on the IMF's board as well as moving the other so-called BRIC countries — Brazil, India and Russia — into the top 10 countries in terms of the quota of votes allotted them on the institution's board.
'We have now a top 10 shareholders which really represent the top 10 economies in the world,' IMF managing director Dominique Strass-Kahn told reporters here Friday — the U.S., Japan, the four biggest European economies, and four BRICs.
This recognition of emerging economies' power — and responsibility — in the global economy was widely welcomed. What NGOs were much more disappointed in, however, was the fact that even following the reforms many European countries still retain quotas that outweigh their current economic power.
'While this represents some progress, it isn’t sufficient,' said Oxfam's Pamela Gomez. 'European countries are vastly over-represented in terms of quota at the Fund, and they should have contributed more towards the shift.'
The composition of the IMF’s board, which runs the institution's day-to-day operations, and the number of votes allotted to the countries represented there were set following World War II and still largely reflect the relative economic weight of countries at that time.
At the G20 meetings held in Pittsburg in 2009, it was agreed that the IMF would seek to shift five percent of voting shares from advanced to emerging economies. The shift announced Friday adds up to six percent, says the IMF.
About one half of that six percent comes from the shares of advanced European economies and, to a lesser degree, the U.S., according to Strauss-Kahn, with another third coming from oil-producing countries like Saudi Arabia and Venezuela which have traditionally been seen as over-represented on the IMF's board.
Strauss-Kahn admits that about 20 percent of that six percent to emerging economies came from emerging economies that have been 'less dynamic'.
Jo Marie Griesgraber, executive director of the New Rules for Global Finance Coalition, says advanced European economies only gave up 1.7 percent of their shares while such countries as South Africa and Nigeria lost 25 percent.
'So where did those shares come from? It's not from advanced Europe — only a small portion did,' she says.
The IMF has called the reforms 'sweeping' and 'very significant'. Griesgraber calls them a 'tribute to European negotiators'.
Under IMF governance rules, each board member represents a coalition of countries with the exception of the largest economies, which have a seat to themselves.
Under the new reforms, it is expected that some European countries, such as Spain and Italy, will move to new coalitions and other countries, possibly Belgium or Switzerland will turn over the leadership of their coalitions to emerging coalition members in order to reflect the new distributions of power.
Griesgraber says that European countries are using these shifts amount to 'fancy footwork' rather than substantive reform.
'So instead of them losing their seats, they are going to do this partial rotating-sharing thing,' she says.
'The unwillingness of European governments to reduce their overwhelming presence on the IMF Board is unacceptable,' says Gomez. 'Europe’s refusal to relinquish dominance of the IMF board makes it clear that they’ll have to be dragged kicking and screaming every inch of the way into the 21st Century.'
But some elements of the reform package were seen as potentially ushering in a new age of IMF governance.
In addition to all the BRIC countries now being in the top 10 in terms of voting shares, all the seats on the Executive Board will now be elected. Previously, the top five shareholders were appointed.
It is hoped that this will lead to both a more egalitarian board and to the opportunity for new and different coalitions to be formed.
Even the U.S., says Griesgraber, could potentially see other countries join with it in a coalition. And she thinks it is likely that this development will mean Saudi Arabia will no longer have a seat to itself.
The Fund's rules will also set the board's size at 24 seats, thus stripping the U.S. of its effective veto power by which it was able to dissolve four of those 24 seats if it wanted — a power it used in August in order to coerce the European countries into being open to reforms.
The reforms, which were agreed by the Executive Board, will now have to be approved by the individual member states, some of which will — as in the case of the U.S. — require parliamentary approval. The IMF hopes to see the reforms implemented in late 2012.
© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service