IMF quota reform is inadequate, reaction to IMFC communiqué

Press release|Bretton Woods Project|18 September 2006|url
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The Bretton Woods Project - a UK-based network of NGOs including Oxfam, ActionAid, Christian Aid, One World Trust and new economics foundation (nef) - called the IMF proposal to reform its voting structure completely inadequate to address the institution's problems. In reacting to the IMFC communiqué that hailed the reform proposal as a significant step forward, Peter Chowla, policy and advocacy officer at the Bretton Woods Project, stated: "It is a real shame that this proposal has succeeded despite the reservations of more than 50 developing countries. Anything short of fundamental reform of the IMF's governance structure will not restore its credibility."

The IMF proposal initially granted voting rights increases to just four countries - China, South Korea, Turkey, and Mexico - and called for a small increase to basic votes and a revamping of the way quotas are calculated. But the proposal does nothing to alter the imbalance of power in decision-making at the IMF or to give more "voice" to developing countries. [1] The balance of power at the IMF will not change with this measure, and developed countries will still maintain their grip on the decisions of the institution. Furthermore the revision of the quota formula may negatively impact the voting rights of many low- and middle-income countries. [2]

Mr. Chowla continued, "Developed countries seem determined to waste this opportunity for reform by pushing cosmetic changes that do nothing more than tinker at the edges. The increase in basic votes is just symbolic and will have no substantial affect on the inequality in decision-making making at the IMF."

British NGOs - including Oxfam, ActionAid, Christian Aid and others - have thrown their support behind a proposal for comprehensive reform [3] and demand that the UK government step forward to propose wholesale changes at the IMF, rather than tinkering with quota adjustments within the two-stage process that has been proposed. Their request goes further than the Treasury Select Committee's conclusion that the UK needs to propose innovative solutions to the problem of voting weights because the current proposals do not address the underlying problems facing the IMF.

Jeff Powell, coordinator of the Bretton Woods Project, explained: "The governance of the IMF needs a fundamental rethink to bring it in line with democratic principles considered acceptable at the national level. This should have been part of a comprehensive package that also addressed the composition of the board and the lack of transparency at the institution."

"One of the most elegant ways to immediately patch up the problems in representation at the IMF would be a system of double-majority voting, so that no decision could be rammed through by rich countries holding most of the votes, nor by an unrepresentative group of small, poor countries," continued Mr. Powel. "This would also be much easier than trying to devise a quota formula that would satisfy all the different countries interested in IMF reform."

For more information contact:

Peter Chowla (London)
+44 (0) 20 7561 7546

Jeff Powell (Singapore)
+44 7817184435

Notes:

[1] The ad hoc vote increases for four countries and a doubling of basic votes (which would not be implemented for years), will decrease the voting weight of advanced economies from 62% of the total to just about 60.5% of the total. African countries will see their vote shares increase a paltry 0.5% to a total of about 6%.

[2] The third element of the proposal - a redesign of the formula that determines voting power - is hotly contested, and the last time the members of the Fund tried to reach consensus on a change, the issue became deadlocked. If the US preference for a quota formula based almost entirely on GDP at market exchange rates is accepted, then countries like Nigeria, Indonesia, Venezuela, Malaysia, South Africa and nearly every other African country would have diminished voting rights in the organisation.

[3] Editors can find the full NGO statement at http://www.brettonwoodsproject.org/ukimfreform. They can find a related press release at http://www.brettonwoodsproject.org/ratovisit

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Published: 18 September 2006 , last edited: 22 November 2006

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