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Wednesday, June 29, 2016
- The head of the International Monetary Fund (IMF), Christine Lagarde, on Wednesday urged countries to act on a suite of reform measures that would significantly increase the voices of developing countries within the agency.
“I call on the remaining member countries to complete the necessary legislative steps and other legal measures quickly to implement these important reforms within the agreed timeframe,” Lagarde said following a review of progress towards implementation of the reforms, agreed upon in 2010 and set to be implemented by this fall.
According to the board’s progress report, 107 countries have given their consent so far, while 80 have yet to do so. “Time is running out,” it warns.
The topic is expected to constitute a key issue at the upcoming Group of 20 (G20) summit, taking place next week in Mexico. It was the G20 that first spearheaded the reforms process, and it is taking responsibility on seeing that the reforms are enacted on time.
“The resistance of the IMF’s major shareholders to even minor reforms of the institution’s governance has become a major item on the G20’s agenda,” Nancy Alexander, director of the Economic Governance programme at the Heinrich Boell Foundation here in Washington, told IPS.
“The problem is leading to more diverse monetary arrangements in geographical subregions and among the BRICS,” referring to the “middle income” countries of Brazil, Russia, India, China and South Africa.
Those countries could stand the most to gain from the reforms process, which will go some distance towards rebalancing voting rights within the IMF. Under the current package, for instance, China’s voting strength would become the third largest.
The reforms would also see a change in the make-up of the Fund’s board. Two of the European seats on the 24-member body would go to developing countries, with some advocating an additional seat be assigned to African countries specifically.
In addition, the Fund’s funding resources would double to about 730 billion dollars, in addition to the 430 billion dollars promised a few months ago aimed at faltering European economies. Such pots of money have become particularly important as the euro zone has continued to falter.
But with developing countries being called on to help bail out Europe, the BRICS have chosen to use the situation to their advantage and press the case for reform.
“The BRICS are saying, ‘We can go elsewhere – we don’t need the IMF. If you want the IMF to work, we’re willing to play with you, but we want our share and are tired of the promises,” Jo Marie Griesgraber, executive director of the New Rules for Global Finance Coalition, an international network based here, told IPS.
On Wednesday, Brazilian officials reportedly suggested that they are thinking of contributing less to the new IMF fund than the country had previously indicated. “We are frustrated because we see that countries that know they will lose influence are resisting” the reforms, Reuters quoted an anonymous Brazilian government official as saying this week.
Several other middle-income countries, including China, India and Russia, as well as G20 host Mexico, are said to support Brazil’s position. The BRICS will be meeting on the issue on Jun. 18.
“Emerging countries are right to hold out for a greater say in the running of the institution before they commit more money to it,” Oxfam International spokesperson Steve Price-Thomas told IPS.
“The old world needs to move over and let these growing economies take their rightful place at the table.”
The BRICS are particularly frustrated by the EU countries, Griesgraber says, which she suggests “by any stretch of the imagination are overrepresented” at the IMF.
“I am very encouraged that the BRICS are working together and considering the consequences for low-income countries,” she says.
“I am also encouraged by the newfound solidarity among the BRICS and the poorer countries that any benefits to the dynamic emerging markets should not come at the cost of the low-income countries.”
Strong solidarity for the BRICS position is also reportedly coming from President Barack Obama’s administration. Although many media outlets have suggested that the United States is stymieing the reform efforts – as the Congress is required to vote on the issue, an unlikely scenario before the November elections – Griesgraber says that Washington is firmly on board.
“The U.S. is allied with the BRICS but doesn’t want a public fight with the Europeans,” she says. “The U.S. administration is not presenting this to Congress yet because they don’t want it turned down, but they’ve said they will act as soon as they can.”
Even if passed, the reforms have been criticised as being too tentative. According to one widely cited set of criticisms by a Brazilian IMF executive, following the reforms the BRICS would have about a 14 percent voting share, less than half the EU’s, despite the two groupings having almost identical collective gross domestic products.
Still, most see the reforms as a small, important step forward. Others, however, point out that the moves do not deal with longstanding structural critiques of IMF policy.
“It isn’t just the voting structure that’s the problem – it’s an institutional problem,” Mark Weisbrot, co-director of the Center for Economic and Policy Research, here in Washington, told IPS.
“Developing countries need to fight for their interests, and in the IMF they can’t do that. These countries are being badly hit because of the mess in Europe, and the IMF is one of the three players making this mess.”
Agrees Heinrich Boell’s Nancy Alexander: “Whatever the outcome of these power struggles and realignments, the key is whether the approach to monetary policy changes. What must change is the privatisation of gains and socialisation of losses.”
While IMF governance reforms are important, Alexander suggests such talk is pointless without also discussing the future priorities of the institution.
“We don’t want to just play musical chairs on board the sinking Titanic,” she says.