IMF reform in developing country perspective
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IMF Spring meetings civil society forum event, 19 April 2013
Sponsored by the Bretton Woods Project, REBRIP Brazil, Public Services International, Third World Network
Participants
Chair: Lesley Wroughton, Reuters Senior Correspondent
Panellists:
- Amar Bhattacharya, G24 Secretariat
- Paulo Nogueria Batista, IMF Executive Director (Brazil)
- Professor Daniel Bradlow, Reserve Bank of South Africa
Presentations
Paulo Batista
- There is a need to update the IMF to a 21st century institution. The 2010 reforms contain forward looking elements and implementing these would be a good first step. Batista believes there is enormous inertia behind these reforms at the IMF and emphasized the need to be patient.
- I support taking a very gradual approach, but the main concern is that the two core reforms agreed to in 2010 have essentially stalled since 2011 – identifying the major impediment as political paralysis in the US Congress, namely its inability or unwillingness to ratify the 2010 reforms. The US had a positive influence is the design and approval of the 2010 reforms, but not is having the opposite effect in its implementation. The US is the only G20 country not to have ratified the 2010 reforms.
- Since 2011 there’s been virtually no movement on IMF governance reform. A gradualistic approach ("we are patient but i don’t think we developing countries can accept that the process completely stops.")
- Fund’s governance change in the recent past is a by-product of the crisis in the advanced countries that erupted in 2007-8. G20–2009 and 2010 reform. Emerging markets in G20 agreed to step up with resources to the Fund, so it’s a serious situation where emerging market countries, we have built our part of the bridge, but the major advanced economies have not played their part. There is expression of significant frustration by the delegations and members of developing countries at the stalled/stagnated voting reform.
Lesley Wroughton (LW)– Will the inability of US to ratify governance reforms delay quota reforms as well?
Batista
- Any delay can be used to justify the next delay. Some countries are delighted to hide behind inaction of the US – “grinning from ear to ear” (implying the Europeans). This paralysis has parallels to the Doha Round at the WTO.
- Every reason to delay has been taken. Delay has become routine. Let’s wait to take next step, one delay leads to another. Enormous inertia in this institution, it is a 19th Century institutions.
- US having very difficult time ratifying the voice and vote reform in Congress.
- Fund supposed to reflect the world economy, Europe not as important as it used to be even 10 years ago, certainly not compared to 20 or 30 years ago.
Bhattacharya
- 19th century not even a 20th century institution — antiquated governance that doesn’t reflect the realities of the day — democratic deficit of the Fun — all countries have equitable voices in the Fund. Let’s take SSA, who has paid the biggest relative cost in terms of the quota shifts? It’s SSA.
- Quota formula is an allocation device that essentially protects Europe, it is not adequately reflecting the shifts to the dynamic countries. Whatever the dynamic countries are getting are coming at the expense of the poorest countries. Why do we have that? Because in the Fund it is a European hegemony, with European blocking power, on 3 levels: 1) MD, 2) 2nd in line, 3) Executive Board.
- And WB being an American hegemony. Essence of the power structure balance.
- Openness variable: most fundamental marker of openness is whether or not you’re in with Europe, in terms of trading relationships.
- Have to ensure the changes of the day, have to get adequate representation on the Board.
- What I have been pushing for is: power of transparency, accountability on who voted for whom, information about country positions.
LW: What influence could you (Brazil and other countries that stand to gain voice with reforms) have in the fund if Brazil had more say?
Batista:
- A great example is the capital flow discussion that occurred last year – developing countries had increasing influence in this discussion but if under-represented countries had a greater voice/more proportionate voice then the institutional positions/views of the IMF would better reflect the realities of the global economy. Batista referred to the IMF as the “North-Atlantic Monetary Fund”
- Fund would benefit from a variety of perspectives if emerging markets and developing countries had adequate representation and voice — for example, on capital flow management. Always working and discussing in the shadow of an unbalanced vote and voice, and thus power, distribution. Gives a slant to the institution that it is a North Atlantic Monetary Fund, not an International Monetary Fund.
- An interesting caveat is that although the G20 is not a representative body, it has adopted governance reform for the BWIs that’s more beneficial to developing countries. Europeans in IMFC, IMF Board and G20 are trying to play downy he G20 commitments up to 2010 as much as they can and highlight the IMFC governance reform agenda — arguing that the IMFC is the policy steering body of the IMF etc.
LW: Is the reform process going to slow?
Bradlow:
- Yes it is. The reform process has stalled. US unwillingness or inability to approve 14th review gives others excuse not to push. 2008 and 2010 reforms do not reverse the fact that sub-Saharan African quotas have been declining. From an African point of view, the voice and participation issue won’t be resolved by the 14th or 15th review. If Africa continues to grow at its current pace, this may change slowly over time, but to improve this now we need to increase the voice for Africa on the Executive Board. There are 45 African countries represented by only 2 seats on the IMF Executive Board. Danny suggests that Africa have another (3rd) chair on the Executive Board – 3 chairs would raise Africa’s voice. He also argued that we can learn from World Bank experience that increased from 24 to 25 chairs where Africa got the additional chair.
- Over a third of the Board is European – 8 and half chairs for 30 odd European countries, but only 2 for 45 African countries.
- The fact that the US Congress is unable or unwilling to ratify the 14th Review gives other countries an excuse to not do anything. Many in other parts of the world not unhappy that the Fund is not doing anything. 2008 reforms had a significant impact, but for SSA they do not change an abysmally low level of representation. And African representation very unlikely to go up either by the 14th or 15th review. It’s not going to be through the quota review. Africa’s size in the global economy. Africa needs to have some sort of other way to be represented — increasing its voice on the Board of Directors, which means essentially a third chair for Africa. Currently 46 countries of SSA is represented by 2 EDs, each one representing 21-22 countries. Not possible for one office to represent that many countries, especially countries that have significant needs for the resources and/or the advisory and technical capacities of the IMF.
- The problem and challenge in doing that is the Board can’t keep growing infinitely, we can learn from the World Bank experience where it grew from 24 to 25 member and the third chair went to Africa. 25 is a guarantee of ineffectiveness in the Board, but this is a political Board not a corporate Board. European countries are dramatically over-represented on the Board.
- Underplayed but important is the diversity of the IMF staff is not fully reflective of the membership of the Fund. Top 2 positions reserved for developing countries, but staff is sorely lacking from developing country regions such as Latin America, Asia, Africa. Diversity of the staff is not fully representative of the IMF members. If there were more diversity, this could change the institution – becoming a “21st century institution”
LW: Who would drive that process?? – What can the board do for pushing reforms forward?
Batista – The Exec Board plays important role, but outsiders also play important role. G20 had a significant role. IMFC has representation problems that replicate the board’s and is trying to play down the G20 commitments and argue that the IMFC better represents the IMF membership. This endangers reform and exacerbates the inertia.
Amar
- The reform needs to reflect economic realities, but also need to resolve democratic deficit. These are the two criteria to measure international institutions of the 21st century: that they are reflective of economic reality and democratic governance
- Who has paid the biggest costs in the reforms process? Sub-Saharan Africa has lost – reforms should not come at the expense at the unprivileged and poor.
- Quota is the tool to protect the advanced economies. Quota debate is about fundamental distortions of the formula – especially “openness.” The most significant factor in explaining the openness variable is that you are European. What we need is a variable that improves the legitimacy of the institution
Discussion
Question on the selection of the IMF managing director
Batista
- The problem is that Europeans and Americans can agree to share these institutions – their unwritten convention has not been abandoned – Until this is abandoned, EMEDs may feel other candidates are only symbolic. – You need US and Europe to have clear and open commitment to a merit-based process
- Issue of the election of the MD not independent, if you add the US and Europeans it is half the voting power on the Board — until this dynamic is addressed, developing country officials coming forward is just tokenistic, a symbolic gesture, not taken seriously.
- MD selection: Open and explicit commitment — that they’re abandoning this convention of European-US MD handshake.
Bradlow
- South Africa supported Ngozi for WB presidency to show African and EMDE unity in nominating an alternative candidate. However, when the two biggest voting blocks have a shared interest in maintaining status quo– very hrad to change.
- MD selection: In the G20’s reform, there was a commitment to have a merit-based open process in both IMF and WB.
Bhattacharya
- Power of transparency can hold to account where votes are made. This makes difficult to make side deals and improves accountability for the democratic process
- Candidates say: not going to put “my name” in the ring, unless you can guarantee me a genuinely open process — what developing countries say.
Question on mobilising civil society to push reforms
Amar
- Civil society hasn’t been powerful enough – an informed civil society can be very powerful, but has paltry to date
- "The only game in town is the IMF – the BRICS and regional don’t’ have the same influence, have never.
- It is civil society in Europe that must speak to it.
- TA biggest part of IMF revenue these days, but not examined. IMF immensely concerned about its reputation.
- Obama administration plus the Congress (Congress doesn’t know anything about IFIs).
- Zero political will. Forces at the steering wheel: Wall Street, TNCs, CRAs, etc.
Bradlow
- Not an issue that many people/groups that mobilize around – but civil society has made some impacts (eg IEO)
- Hard to galvanize civil society on this technical issue, nobody’s losing sleep over this. But the consequences are enormous. Seen as the status quo. Do things to open up spaces to allow more and more voices to be heard. When EDs in the Board directly hear the voices, it’s very hard to ignore a real human being, to not listen to an audible voice.
- Not just about money and power, but about the repository of knowledge. Can give cross-country experiences to countries. If we shut these institutions down, the data would be at risk, and the data is collective knowledge.
