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Friday, March 7, 2014
- More than 130 scholars, former government officials and policymakers are calling on the U.S. Congress to enact pending legislation enabling broad governance reforms within the International Monetary Fund (IMF) that would strengthen the voice of developing countries within the institution.
A new open letter, sent Monday to both houses of Congress, comes as President Barack Obama’s administration has formally requested approval to affirm the reforms. Although officials at the IMF’s Washington headquarters agreed on the changes in 2010, the effort has since been stymied by lack of action from the United States, the Fund’s most powerful member.
Ironically, it was the United States, together with rising “middle income” economies, that spearheaded the push for a re-allotment of IMF “quotas”, or voting rights based on economic shares, in the first place. Due to Washington’s inability to greenlight the new changes, the process has already blown two deadlines.
“Realignment of IMF quota shares, while preserving U.S. influence in the IMF, will enable the IMF to respond to shifts in the global economy, involving emerging powers more deeply in the institution and avoiding their disengagement,” the open letter, obtained by IPS, states.
“Congressional enactment … will sustain U.S. leadership in global financial matters. Failure to act would diminish the role of the United States in international economic policy-making and undermine U.S. efforts to promote growth and financial stability.”
Those taking part in the new letter include former officials from previous presidential administrations, Washington think tanks, universities, and activist and watchdog organisations.
Last week, a similar letter was sent by 19 former high-ranking U.S. officials, including former World Bank presidents (Robert Zoellick and James Wolfensohn), Treasury secretaries (Henry Paulson, John Snow, Lawrence Summers), foreign policy luminaries (Zbigniew Brzezinski, William Cohen) and others.
Although the president has been delegated the power to oversee U.S. dealings with multilateral lending institutions, Congress still needs to approve any related actions. While President Obama’s administration continues to support the IMF governance changes, it put off broaching the subject until after the presidential elections in November.
Last week, reports arose that the U.S. Treasury, the administration’s lead department on dealing with international financial institutions, had finally proposed a legislative provision that would formally allow the president to approve the reforms. Given that the changes would also double the size of the IMF’s holdings to around 720 billion dollars, the new legislation would also allow for a re-allocation of previously approved U.S. support for the Fund.
This last point is important, as the administration would be able to transfer some 65 billion dollars from an emergency IMF fund into the U.S. quota – maintaining its predominance without allocating any extra money (the United States’ overall commitment to the IMF is around 100 billion dollars). That would be quite a feat in the current economic climate of austerity, with some Republicans opposing giving any new money to the Fund.
“The United States is committed to implementing the 2010 quota and governance reform,” a Treasury spokesperson told IPS. “We are actively working with Congress to get quota legislation completed as soon as possible. As the only country with a veto, implementing the quota reform will enable the U.S. to preserve its leadership in the IMF without any new financial commitments.”
Indeed, while the quota changes would significantly increase the currently underweighted influence of fast-rising economies such as Brazil, China, India and Turkey, it would not do so by cutting down on the United States’ nearly 17 percent voting share within the Fund.
Rather, it would decrease the cumulative share of European members, which nearly all observers say is currently outsized in terms of gross domestic products. The Netherlands and Spain, for instance, both have voting shares similar in size to Brazil’s, despite the fact that the Spanish economy is less than two-thirds the size of the Brazilian.
The hold-up in reforms passage is widely seen, including by many signatories of the new letter, as a potential loss of legitimacy both for the IMF and for the United States’ longstanding control of the organisation. Increasingly frustrated “middle income” countries, for instance, are already in discussions on how to create parallel multilateral lending institutions outside of the IMF – in which their voices would be far more influential.
“The United States took the initiative on these reforms in order to sustain U.S. leadership in the IMF, and many now feel that Washington needs to see through those commitments – U.S. leadership will weaken if doesn’t pass these reforms,” Nathan Coplin, a coordinator with New Rules for Global Finance, a Washington watchdog, and an organiser of the new letter, told IPS.
“The legitimacy of the Fund overall is probably the most poignant and relevant issue at stake in this reforms process. The next few years will really tell whether the stakeholders will become a lot more engaged and help to set new standards. Beyond lending, the Fund can also start to define a different kind of leadership role.”
Still, for many who have been pushing for changes to the IMF’s functioning, the most important aspect of this governance tweaking is that it would open the door to further modifications.
“We actually feel that these reforms are not comprehensive enough, but the Fund also won’t be able to push forward with any new reforms until these go through,” Coplin says. Indeed, another round of changes is already due by January.
“The quota reforms of 2010 are steps, baby steps, in the right direction for better IMF governance,” Eric LeCompte, executive director of Jubilee USA Network, a Washington-based alliance working on debt reduction for developing countries, told IPS. “The IMF has a long road to walk before it is as inclusive as the United Nations, but these reforms point in the right direction.”
The new U.S. legislation has already run into trouble, however. Members of Congress are currently at work on a major finance bill that needs to pass before Mar. 27, in which the Treasury’s proposal could be inserted.
Yet Republicans in the House of Representatives – many of whom, in 2010, tried to end U.S. contributions to the IMF – have refused to include the provision. It now remains to be seen whether the Democratic-controlled Senate will include the IMF language in its version, which observers say would significantly increase the proposal’s chance of passage this month.
If the provision is not included in the end-March legislation, the reforms process could again be forced into limbo for several additional months.