Development & Aid, Economy & Trade, Europe, Eye on the IFIs, Global, Global Geopolitics, Global Governance, Globalisation, Headlines

ECONOMY: IMF Reforms Itself, A Little

John Vandaele

BRUSSELS, Apr 29 2008 (IPS) - The poor have been given a little more say in the IMF. It is still a small step, but the biggest such in the last 60 years.

The rich countries have so far had 60.57 percent of voting rights in the IMF. The reform on Monday reduces that to 57.93 percent.

For many developing countries and NGOs this is still not enough, but it is the biggest single change in voting rights in favour of developing countries in the IMF, which was set up in 1946.

Members of the International Monetary Fund (IMF) had time until Apr. 28 to approve the proposal to give developing countries more power in the institution.

IPS was told that the proposal has been approved with 92.93 percent of the vote, comfortably more than the minimum of 85 percent needed for the new division of voting rights to enter into force.

Important IMF members like Russia and Saudi Arabia voted against the proposal, because it meant that their voting weight is reduced. But the opposition from them was not strong enough to keep the decision from being taken.

Developing countries have been complaining for many years that they do not have enough power within the IMF. Nor do many of them believe that the Fund is really for their good. For that reason, some developing countries have amassed enormous financial reserves to make sure that they will not need the IMF any more in case of a financial crisis.

IMF assistance to many developing countries in need in the past has been linked to lots of policy conditions. The most controversial of these were the Structural Adjustment Programmes that the IMF demanded in return for rescue loans.

These adjustment programmes meant in effect a lowering of import barriers and a move towards a supposedly free market economy that frequently harmed local industry and produce. Such reforms are usually referred to as the Washington Consensus – over which there is now little consensus.

The growing clout of the developing countries against such impositions, and the increasing strength of their economies, raised the pressure on the IMF to reform. In 2006, the voting rights of South Korea, Mexico, China and Turkey were increased. This week, a second important step was approved.

As a group, developing countries now see their share of voting rights grow from 31.7 percent to 34.49 percent. Most of the increase goes to the emerging economies, that now have 25.64 percent of the vote within IMF instead of the 23.88 percent earlier.

Countries like Brazil, China and India get more voting power, while Saudi Arabia and Russia have to make do with less. The share of the majority of low income countries has improved from 8.45 percent to 9.61 percent.

The transition countries, the former Soviet Union states, see their share drop slightly from 7.09 percent to 6.82 percent.

The most influential members of the IMF remain the U.S., Japan, Germany and a group headed by Belgium consisting of Turkey, Austria and several Central and Eastern European countries.

The IMF managing director has always been from a European country, by way of an agreement among the developed countries.