For five years, governance reforms at the IMF have been stymied by the refusal of the US Congress to accept a new and higher quota (money) to the IMF.This has frustrated efforts to integrate the developing countries, especially the large ones, like China, better into the global economy.It may have also helped spur China to develop parallel organizations, like the Asian Infrastructure Investment Bank.
The omnibus spending and tax bill that looks likely to be approved by Congress and signed by Obama in the coming days includes a provision to accept the IMF reforms.
When the reforms are enacted, the US weighted voting authority will slip to 16.5% from 16.7%.As many decisions require an 85% majority, the US retains its effective veto.China’s voting weight reportedly would rise from 3.8% to 6.0%. As was the case with the SDR decision, the rise of China comes at the expense of Europe, not the US.
In exchange for its approval, Congress is demanding a greater role in some IMF decisions. Specifically, the agreement reportedly will require the Administration to work toward repealing the “systemic exception” created in 2010 to allow the IMF to take part in European aid to Greece.The extent of the IMF’s involvement in Europe has troubled many members, including the US apparently.
The legislation also would require that the Administration notifies Congress at least a week before an IMF vote is held on “exceptional access”. This is the practice by which the IMF can lends funds above normal limits on a case-by-case basis.It requires the approval of the Fund’s Executive Board. Congress is also insisting that a study be launched to see if collateral should be required for such loans.
These seem like relatively minor encroachments by the US Congress.The more important consideration is that it begins the long overdue process of modernizing the IMF.Begins in the operative word because this is only a first and modest step.The reforms will double the IMF’s quotas and shift six percent of the quota shares to emerging and developing countries. About half the shift comes from developed countries, mostly Europe, and a third from the oil producers. The high income countries in Europe will have two few seats on the Executive Board, and will be replaced by two directors from lower income countries. Projections indicate that about 110 of the 187 IMF members will see their quota shares increased or maintained.
