While the IMF has been promised another $456 billion to add to its coffers, large emerging markets are conditioning their contributions on governance reforms. Meanwhile, activists are calling for deeper changes in the way international institutions are governed.
In mid April, a meeting of G20 finance ministers noted “firm commitments” to increase IMF resources by over $430 billion, on top of the quota increase under the 2010 reform (see Update 79, 73). This increase included $68 billion from “China, Russia, Brazil, India, Indonesia, Malaysia, Thailand and other countries”, showing “the commitment of the international community to safeguard global financial stability and put the global economic recovery on a sounder footing.” The breakdown of the contributions from the emerging markets was not announced at the time, leaving it to the mid June summit of G20 leaders.
When the full breakdown of the contributions was finally clarified – in a joint statement by Brazil, Russia, India, China and South Africa (BRICS) – China ended up committing $43 billion; Brazil, Russia and India each pledged $10 billion; and South Africa offered $2 billion. This bumped the IMF’s total funding increase to $456 billion.
the IMF will inevitably loose credibility as an 'international' institution
The entire increase is being accomplished through bilateral loans agreements and not the quota system, which determines voting rights, or through the New Arrangement to Borrow (NAB), a set of credit arrangements between the IMF and 38 member countries (see Update 80). This is partly because the US has refused to participate in the resource increase. The BRICS have not made the new contributions without conditions, as their joint statement said “these resources will be called upon only after existing resources, including the [NAB], … are substantially utilised”, and that the money was provided “in anticipation that all the reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares”.
New IMF quota formula debate
Changes to IMF voting rights, which are determined by how much money a country contributes to the IMF through the quota system, are moving more slowly than developing countries wanted. The 2010 agreement on governance reform (see Update 73) was supposed to be implemented by October 2012. However, a June IMF policy paper clarifies that for the 2010 quota changes to be enacted, an amendment to the articles of agreement agreed in 2010 must also be enacted. So far only 80 members with 55 per cent of the vote share have approved the change, far short of the required 113 members with 85 per cent of the votes. The US is the most important hold out.
In March, the IMF executive board also began discussions on the review of the formula used to guide quota allocations. The summary of the board discussion, published in April, makes it clear that the different executive directors are as far from consensus as ever on how to revise the factors that make up the formula. Under the 2010 agreement, the review is to be completed by January 2013. By the October election of executive directors, Europe is also supposed to agree on a voluntary restructuring of its board constituencies to reduce the number of European directors by two. However, no information has been made public on the progress in reaching an agreement, nor have the executive directors consulted with civil society groups in their countries on any proposals.
The slow pace of the reform bothered government representatives from developing countries. In a mid June blog post, Arvind Virmani, the Indian executive director at the IMF, wrote that “unless the power balance in the IMF changes to reflect the changes in the economic power in the world economy, the IMF will inevitably loose credibility as an ‘international’ institution!” He went on to argue that “rising powers [are] perfectly willing to contribute as much as needed as long as their quota share is adjusted appropriately”, but that “in the past year I have heard nothing (in the IMF or G20 setting) that would indicate that there is any recognition by the European powers of the need for formula reform (and vote shares) to maintain credibility.”
The rising powers are not the only ones dissatisfied. South African finance minister Pravin Gordhan, speaking on behalf of Sub-Saharan African (SSA) countries at the spring meetings in April, said “SSA cannot be counted on to continue to support reforms that seek to legitimise the IMF, while simultaneously undermining representation of a large number of countries. SSA will support a formula that does not reduce its quota share any further.”
Activists and social movements also called for change in the structures of international economic governance. In mid May, the International ‘Global Spring’ Assembly – “an international and inter-movement assembly formed of supporters of Occupy, Take the Square and Latin American, African, Asian and Middle Eastern social movements” – issued its GlobalMay Manifesto that argued “the economy should be run democratically at all levels, from local to global” and that “as long as they exist, the IMF, World Bank and the Basel Committee on Banking Regulation must be radically democratised.”