♠ Posted by Emmanuel at 6/19/2012 02:45:00 PMIt's a topsy-turvy world when you have poor countries (a) contributing emergency funds to help bail out rich countries and (b) placing loan conditionalities on the IMF instead of having conditionalities being placed on them by the IMF. However, these are not normal times. As Europe lurches from crisis to crisis at the whims of the Greek electorate and market forces among other things, the cost of containing European contagion keeps rising. In the past, LDCs have been understandably unwilling to contribute more to the IMF given that America and Europe have not moved the ball forward on reforming voting shares manifested in quotas in accordance with the new contributions being made by developing countries. In particular, many European nations remain overrepresented given their actual contributions as compared to the pledged contributions of major developing nations.
At the recent G20 summit in Mexico, however, these selfsame developing countries including previous repeat Latin American borrowers alike the host and Brazil have changed hats and are now lenders. The Latin debt crisis was a long, long time ago. That said, unlike the New Arrangements to Borrow (NAB) which were contributed by them but didn't raise their quota shares or voting rights in the institution, they are making these new contributions conditional on voting reform. So yes, it's my favourite metaphor of structurally adjusting the IMF once more--this time at the behest of countries that were previously its (reluctant) borrowers:
"These new contributions are being made in anticipation that all the reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares," the BRICS leaders said in a joint statement. The BRICS sought to tie the loans to long-delayed reforms that would give the developing world more say at the Washington-based Fund by boosting their voting power as shareholders.Again it's the issues of fairness: Why should poor countries bail out rich countries? Also, isn't assisting their own people whose standards of living are much lower than those of crisis-hit European nations a better use of their foreign exchange?
"If the quotas are not commensurate with the relative economic weight of the different countries then it has to be changed," said He Jianxiong, director general of the international department of the People's Bank of China. In their public remarks in Los Cabos, Chinese officials declined to discuss sums and stressed the need to implement IMF quota reforms agreed in 2010. Growth of the emerging countries, which has far outstripped that of the rich world in recent years, made it "only natural that the quotas should be shifted from developed economies to developing economies," he told reporters.
The Chinese central bank's He indicated that Beijing still has to win over a skeptical public on the need for China, which still has hundreds of millions of poor people, to help bail out European countries with higher standards of living. Emerging economies have long demanded more say at institutions like the IMF to reflect their growing clout. Their frustrations have grown with the likely delay in implementing the 2010 deal that would boost their voting power and make China the third-largest voting member of the IMF.
Indeed, the PBOC emphasized in an unusually detailed statement on its website later that such pledges would not necessarily be drawn down. The comments appeared aimed at addressing domestic criticism that China should not be helping out more prosperous countries.For instance, China had promised to buy $50 billion in IMF bills when the fund expanded in 2009, the central bank said, but to date had only actually purchased $5.7 billion worth.
So yes, these new contributors are likely to demand quota reform prior to them making available more emergency funds. They are tired of being shunted off to NAB where quota shares are not adjusted and will require immediate increases to their shares as befits their additional contributions.