For a long time, the developing world has clamored for a larger role at the IMF commensurate with their growing stature in the world economy. Having contributed much to beefing up IMF resources during the recent (American-sourced) global financial crisis--witness the odd phenomena of poor countries contributing to the bailout of ostensibly "rich" countries such as Greece and Portugal--you would think these poor countries deserved a greater say in IMF governance.Well, tough. In 2011, the Europeans got to appoint the institution's next managing director in Christine Lagarde to replace the rather frisky DSK instead of choosing someone from the developing world to break up the monopoly. Meanwhile, plans to implement IMF reforms that take away voting powers from Europeans and redistributes them to poor countries have been indefinitely delayed by the US.
This package of IMF reforms--increased funding accompanied by greater voting powers for developing countries--was supposed to be done in 2012. Due to American intransigence, however, it has gone nowhere. To his credit, Senate majority leader Harry Reid (D-NV) recently tried to bundle this reform package with Ukraine aid, only for it to be questioned by Republicans in congress. Meanwhile, at the recently-concluded IMF spring meetings, Lagarde (gently) chided the Americans for delaying reforms pretty much everyone else is agreed upon in bolstering resources and redistributing governance:
Both Tharman [Shanmugaratnam of Singapore, chairman of the International Monetary and Financial Committee or IMFC] and Lagarde expressed regret for the continued delay in advancing the IMF quota and governance reforms agreed in 2010. “These reforms to the Fund are not just institutional reforms, they’re reforms that will enable us to have a safer and better world, because the Fund provides critical public goods,” Tharman said.Considering that the US uses the IMF to fulfill its policy objectives, what reasons are offered for delayed American efforts to finalize the reform package? The average American has no idea whatsoever what the IMF does, while politicians may not fully appreciate the institution's usefulness in pursuing American interests. At any rate, the IMFC also gave the US an ultimatum at the recently-concluded meetings: either the US moves on the matter or the rest will go on without it if nothing is done by year end:
At the G-20 press conference on April 11, Tharman said that there was “significant goodwill” among ministers to find a way forward on the quota issue and that there was consensus on the absolute importance of maintaining a strong and adequately resourced IMF. “We have a way forward,” said Lagarde, noting that the IMFC set an end-2014 deadline for ratification of the 2010 reforms. If this deadline is not met, the IMF will develop options for next steps.
We are deeply disappointed with the continued delay in progressing the IMF quota and governance reforms agreed to in 2010 and the 15th General Review of Quotas (GRQ) including a new quota formula. We reaffirm the importance of the IMF as a quota-based institution. The implementation of the 2010 reforms remains our highest priority and we urge the United States to ratify these reforms at the earliest opportunity. We are committed to maintaining a strong and adequately resourced IMF. If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps and we will schedule a discussion of these options.Meanwhile, here is a laundry list of excuses for US delays:
The U.S. Congress has refused to sign off on the overhaul, which was agreed to in 2010...Some Republicans have complained the changes would cost too much at a time Washington was running big budget deficits. The reforms also ran afoul of a growing isolationist trend among the party's influential Tea Party wing. If Washington does not ratify the reforms this year, the G20 advanced and emerging economies said they would ask the IMF to develop possible next steps.How to "move forward" is complicated by the IMF requiring at least 85% of all shareholders to agree on something, i.e. taking steps without the US. However, the US currently has 17 point something-something shares, enabling it to veto any such move in theory. Surprisingly, some of those calling for the IMF to move on without the US are the folks over at the (Washington-based) Institute for International Economics. I guess "America Sucks" is a broader church than I thought...
A source said Brazil had pushed for a harder line. It wanted to require the Fund to begin work now to determine options to be implemented if the United States failed to act, a notion that was floated in an early draft of the communiqué. "The end of the year for me is the final limit," Guido Mantega, the Brazilian finance minister, said later through a translator. "Four years waiting for me is just too much."
The time has come to think the unthinkable: The Fund should move ahead without the United States. If the United States does not want to participate in reforming the IMF, it should get out of the way...we propose two ways for the Fund to move ahead by raising funds from others while depriving the United States of some or all of its longstanding power to block major Fund actions.
One way would be to make permanent the 2012 initiative by IMF managing director Christine Lagarde to arrange temporary bilateral credit lines of nearly $500 billion from 38 countries, augmenting the Fund's capability to finance its lending [and in so doing reduce the United States' quota shares below 15% by regularizing the New Arrangements to Borrow without US contributions]. The United States opposed that proposal, but the IMF and other countries could convert it into a permanent arrangement, placing decision making in the hands of the funding countries, not the United States.
A more radical approach would be to increase total country quota subscriptions in a manner that would also not allow the United States on its own to stop the Fund from reforming its governance. The United States deserves to lose influence if it continues to fail to lead. Washington obviously should not withdraw from the IMF. But its historic leadership role deserves to decline unless the Congress reverses itself. It should let the rest of the world pick up the reins and move ahead if they are prepared to do so.
details in a blog post for getting around the 85% requirement. I have included the table above comparing current and proposed quota shares. The curious thing is that the US would still retain its effective veto power (over 15% of shares) after the reforms. Yet, it chooses to risk falling below that mark by not moving on the matter while the rest of us do. The political calculations are fascinating: perhaps the US is counting on Lagarde not going that far in terminating the United States "first among equals" status? Like Darth Vader flinging the Emperor into the abyss at the cost of his own [political] survival, perhaps even she can be brought to her senses.