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WASHINGTON, Sep 28 2010 (IPS) - Thirteen leading international economists and development specialists called here Tuesday for a major reform of the governing body of the International Monetary Fund (IMF) and the way it does business.
The appeal, in the form of an open letter to the IMF’s board of governors, echoes in part a call by the administration of U.S. President Barack Obama for Western European countries to reduce their share of spots on the Fund’s executive board in order to ensure greater representation for emerging powers, such as China and India, as well as for poor countries from Sub-Saharan Africa and other regions.
But the letter goes beyond the Obama administration’s demands, which are likely to dominate next month’s annual meeting here of the IMF’s board of governors, by urging the adoption of additional reforms that, among other things, would eliminate Washington’s veto power over major IMF policy decisions and ensure greater transparency in the agency’s often-opaque procedures.
“We are saying that Europe is not doing enough to push ahead with IMF reforms regarding the reconstitution of the board,” said Domenico Lombardi, an expert at the Washington-based Brookings Institution and the Oxford Institute for Economic Policy, and one of the letter’s signatories.
Other signatories include Nancy Birdsall, president of the influential Center for Global Development (CGD) here; Paola Subacchi of London’s Chatham House; Pamela Gomez of Oxfam International; Jo Marie Griesgraber of the non-governmental coalition, New Rules for Global Finance; Bessma Momani of the Centre for International Governance Innovation; and several of Lombardi’s colleagues at Brookings, which has made a number of far-reaching proposals for reforms of global institutions since Obama’s election.
“On top of that, we also support some reforms that are not currently on the agenda of the IMF or of the G20 (Group of 20) but we still believe are very important, like increasing the transparency of IMF decision-making, establishing a merit-based and open and transparent process for selecting the IMF’s leadership…, and a reconsideration of the 85 percent super-majority that gives veto power to one country or bloc of countries,” Lombardi, who served as Italy’s representative on the executive board from 2001 to 2005, told IPS.
European countries currently hold nine of the 24 seats on the IMF’s executive board, which theoretically represents all 187 member-states.
And, although the European Union (EU) accounts for about 20 percent of the global gross domestic product (GDP), it holds almost a third of the IMF board’s total voting power, compared to the 17 percent held by the United States or the 3.72 percent held by China, which just displaced Japan as the world’s second largest economy.
At its summit in Pittsburgh one year ago, the G20 agreed that five percent of the voting power on the IMF’s governing board should be shifted to developing countries, particularly those that have emerged as major economic powers over recent decades. But it did not decide how precisely that shift was to be allocated.
The stakes are high. As private investment flows mushroomed in the 1990s and into the past decade, the IMF’s relative importance declined. But, in the wake of the September 2008 financial crisis, the IMF has reclaimed its position as a major player, with its loans skyrocketing from less than two billion dollars in 2007 to nearly 200 billion dollars in the past year and with another 800 billion dollars available to bailout troubled economies.
The assumption since the Pittsburgh G20 summit has been that the five percent shift should come largely at Europe’s expense. Indeed, at a Congressional hearing earlier this month, U.S. Treasury Secretary Timothy Geithner noted the IMF’s “very unbalanced governance structure” and what he called Western Europe’s “disproportionate share” of positions on the executive board.
To stress the importance it attaches to such a change, the U.S. representative to the IMF board last month threatened to let the current board dissolve – a threat that could reduce the total number of seats on the executive board from 24 to 20 – unless the Europeans agreed to give up at least two of the seats they currently hold and a commensurate percentage of their voting power.
The European countries have resisted the proposed shift, not only because of the prospective loss of power, but also due to the difficult decisions they would have to make internally about how to allocate the remaining seats.
Britain, Germany, and France – along with the U.S., Japan, China, Russia, and Saudi Arabia (the latter three all relatively recent additions) – all hold permanent seats under the IMF’s Articles of Agreement, and none of the three is eager to give up such a privileged position.
IMF Managing Director Dominique Strauss–Kahn has set January 2011 as the deadline for implementing the changes. If that deadline is to be met, most observers believe agreement must be reached by the G20 Summit in Seoul in November.
The letter praised the Fund’s recent role in responding to the international financial crisis by providing more funding to its middle-income and poor clients under fewer conditions but stressed that “progress has been slow on improving critical aspects of IMF governance in which full support of the membership is essential.”
“We urge you to support a comprehensive package that addresses key reforms of IMF governance in order to generate a tangible shift in the representation, inclusiveness and accountability of the institution,” the authors wrote.
In addition to the five-percent shift in voting power from advanced to emerging and developing countries, it called for a “major consolidation of European representation in order to give a greater voice to currently under-represented areas of the world.”
In addition, however, it called for “a significant improvement to the limited and outdated disclosure standards of executive board decision-making …to allow citizens of member countries prompt access to its proceedings.”
It also called for “a transparent, open and merit-based selection of senior management and leadership of the IMF and other international organizations without any restriction as to the nationality of the candidates.”
That recommendation is apparently designed to end the traditional practice of electing a European to head the IMF and a U.S. citizen to head its sister agency, the World Bank. Western officials have also traditionally dominated other senior IMF and Bank management posts.
Finally, the letter urged a “lowering of the 85 percent supermajority rule for decisions other than amendments to the (IMF’s) Articles of Agreements.”
Directed at the effective U.S. veto over major policy decisions, that recommendation has been endorsed by some European officials but not by the Obama administration.
*Jim Lobe’s blog on U.S. foreign policy can be read at http://www.lobelog.com.
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