Emerging powers rise in IMF as US unblocks reforms
China, India and Russia will soon speak with a louder voice at the International Monetary Fund. After years of opposition, the US Congress has dismantled the final barrier to reforms that will give the emerging-market powers more say in the affairs of the 188-nation global crisis lender.
The IMF reforms are part of a $1.1 trillion spending package approved by Congress on Friday, and signed into law by President Barack Obama.
Adopted in 2010 by the international community, the reforms were expected to take effect in 2012.
But with the United States holding by far the largest share of voting rights at the IMF, Congress’s refusal to approve the reforms had held up their implementation, to the consternation of IMF management and members.
The blockage has been a sore point between President Barack Obama’s Democratic administration and the opposition Republicans who control Congress.
Republicans had rejected the slightest favorable gesture toward the multinational organization, the object of some criticism in Washington for its largesse toward Greece.
In recent years, international summits have unfailingly included a pointed reminder about the stalled reform process — seen as all the more frustrating since the United States was among the first countries to call for an IMF overhaul in 2010 amid the global financial crisis.
At the end of their last summit in mid-November in Turkey, the Group of 20 economic powers said in a statement that they “remain deeply disappointed” with the delay in reforms and “we urge the United States to ratify these reforms as soon as possible.”
The long stall also led the so-called BRICS — Brazil, Russia, India, China and South Africa — to set up an economic alternative, launching in July 2014 their own monetary fund and development bank.
The US approval will likely ease their frustrations with the 70-year-old IMF, dominated by the US, Europe and Japan, as well as remove a major headache for the Obama administration.
“The IMF reforms reinforce the central leadership role of the United States in the global economic system and demonstrate our commitment to maintaining that position,” US Treasury Secretary Jacob Lew said in a statement. The reforms, however, are crucial for the IMF itself. They double the crisis lender’s permanent financial resources, known as quotas, to some $660 billion.
The green light by Congress thus paves the way for the IMF to abandon some makeshift mechanisms it had adopted to keep its finances afloat and finance rescues of members in crisis.
But above all it allows the Washington-based institution, founded in 1945, to better reflect the current interconnectedness of the world economy, exposed in stark relief during the 2008-2009 global crisis.
The measures slightly reshuffle the IMF executive board by reducing the representation of advanced economies, particularly in Europe, to give a greater voice to dynamic emerging powers.
Currently China, the world’s second-largest economy, has less than 4.0 percent of voting rights at the IMF, only slightly less than Italy whose economy is five times smaller.
After the reforms are implemented, China will see its voting rights nearly double to over 6.0 percent, the largest gain. For example, India’s weight will rise from 2.3 percent to 2.6 percent.
The US action also hands a personal victory to the managing director of the IMF, Christine Lagarde, who has been pushing hard for the changes to preserve the credibility of the Fund.
Lagarde once joked she would “do belly-dancing” if needed to get US ratification.
“The United States Congress approval of these reforms is a welcome and crucial step forward that will strengthen the IMF in its role of supporting global financial stability,” Lagarde said.
Still, the reforms will not resolve all the representation problems at the IMF. With 16.5 percent of voting rights, the United States remains the largest stakeholder and continues to hold veto power.
“The IMF reforms remove a stain on the institution’s legitimacy,” Eswar Prasad, a former IMF official, told AFP.
“However, the scars caused by the protracted delay in having these reforms ratified and put into operation will not be easily erased.”