IMF quota reform poses risks to developing countriesDuring the annual meetings in Singapore the board of governors of the Fund passed a resolution (see Update 52) that sets in motion a two-year quota reform process which may end up eroding, not enhancing, the voice of developing countries in the institution. The resolution – which included ad hoc quota increases for four countries (China, South Korea, Turkey and Mexico) and commitments to revise the quota formula and increase the level of basic votes – was approved by IMF members accounting for 90.6 per cent of the voting rights. The proposal requests that the executive board put forward concrete proposals for the new quota formula and the size of the basic vote increase before the annual meetings in 2007, and sets hard deadlines of spring 2008 for the quota formula review and fall 2008 for the basic vote agreement. It was reported that 23 countries voted against the measure, including India, Argentina and Brazil. India has been the most vocal critic of the proposed changes, arguing instead for all changes to be adopted together as opposed to stretching the process out over two years. Indian finance minister Palaniappan Chidambaram said, “We were not in favour of any ad hocism including the proposed two-stage process based on a hopelessly flawed formula. We believed that all reforms – new quota formula, realigning country quotas, and increase in basic votes – could have been adopted simultaneously as a package.” Basic votes inadequateMost developed countries have trumpeted the commitment to “at least a doubling of the ‘basic’ votes”. Basic votes, which are allocated to every country and are not tied to the quota formula, have dropped from over 11 per cent of total votes at the time of the Fund’s inception to just 2.1 per cent now. Because developing countries outnumber developed countries in the Fund, increasing basic votes boosts their share of the total vote. However, even a trebling of basic votes, which has been called for by numerous governors in their speeches to the International Monetary and Finance Committee (IMFC), would do little to affect the distribution of power or change decision making procedures. No proposal for changing the basic votes would prevent industrialised economies from maintaining their majority of voting weight. Table 1: Impact of basic vote increases
Regressive formulaThe change in basic votes will be tied to agreement on "a simpler and more transparent" quota formula. The real worry for developing countries is that the new formula will actually lower their share of the total vote. While the factors to be included in a new formula will be the subject of negotiation over the next year, the US, the EU and Japan all agree that GDP at market exchange rates should be the predominant factor. While the US has left room to consider absolute variability of the current account, the EU prefers a formula based on openness to trade. In either formulation, combining a two-factor formula with a trebling of basic votes would actually decrease the voting power of developing countries from their current share of about 30 per cent to ranges of approximately 20 per cent to 25 per cent of the total. While the US has committed to forgoing any quota increase that it may be entitled to under a revised formula, no other developed country has been willing to do the same. In fact, the EU has stated the opposite. In a draft position document leaked to newswire Bloomberg, EU member states refused to swear off increases to their quotas. They have also rejected using current account variability as a factor in a new quota formula. They have also looked to delay quota adjustments from any new quota formula, arguing that adjustments should be drawn out over decades and only in the context of an increase in total quota due to insufficiency of Fund resources. Finally they have rejected any moves to link reform of quotas to reform of the executive board. Board reform off the tableWhile commentators have called for a ‘grand bargain’ on IMF governance reform (See Updates 48, 51), powerful members have resisted anything but the smallest changes to the executive board. The recent quota reform proposal only called for more staff resources and more than one alternate executive director (ED) for large constituencies. These minor changes do not address the imbalance in board representation which sees Europeans hold one-third of board chairs. Europeans have consistently sought to protect their privileges at the IMF, and refused to link board and quota reform. The board also continues to refuse to publish voting records or transcripts of board meetings. The board’s poor functioning and imbalance has prompted the New Rules for Global Finance Coalition to convene a high-level panel on IMF board accountability. The panel – which includes former EDs, academics, IMF officials and representatives from civil society – will publish its recommendations in January. http://www.new-rules.org/docs/imfreform/imfaccountability100306.htm This text may be freely used providing the source is credited. This page is: <http://brettonwoodsproject.org/art.shtml?x=545872> Published: 23 November 2006 , last edited: 27 May 2010 Viewings since posted: 7745 |
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