IMF: Make room for younger powers
By Jo Marie Griesgraber, who is the executive director of New Rules for Global Finance Coalition, an organization that seeks to promote stable global financial systems which reduce poverty and inequality. The opinions expressed are her own.
Governors of central banks and finance ministers around the world who constitute the board of governors of the IMF are voting today on the 2010 IMF Governance Reform program, approved first by the G20 Finance Ministers, then by the executive board of the IMF.
At stake in the governance reform debate is measuring the size of a country’s economy. The “measuring tape” is the Quota Formula. The size determines the country’s quota, which, in turn, determines the number of votes it has on the executive board. It also determines the amount the country contributes to the IMF’s resources, and how much the country can borrow in time of need. One number serves three functions. The problem is that there is not a universally agreed upon way to measure the size of a national economy.
The financial crisis has resurrected the IMF to a new life as the global lender of last resort. The IMF is even designing the “Mutual Assessment Process” for the G20 group of Systemically Significant Economies.
Many NGOs and think-tank idealists, however, had hoped and assumed that the advanced European economies would lose some of their voice and seats on the IMF executive board, where they currently hold either eight or nine seats, so that low income countries who are so dependent on the IMF would gain some voice over their own destinies.
The IMF’s agreement in 2008, the last time it occurred, provided about 2.7% shift of shares from developed to developing countries, along with the increase in basic votes. The formula of 2008, though, was deeply flawed by most accounts, for example by counting intra-Eurozone trade twice through two different measures. The formula of 2010, begins with the same flawed formula, but has the added advantage of the G20 commitment to change “chairs” as well as some shares. (The Europeans agreed to reduce their chairs by two.)
One could say watching governance reform at the IMF is like watching a glacier melt. It is hard for former empires to shrink with grace. It is harder still to accept the argument that just because a country is “bigger” it is therefore “better”— even though that was how the rules were originally written, with votes being based on size of economy at a rate pre-determined by the US Treasury in 1944.
Too often in human history the old, arrogant powers refused to give way to the upstart new powers. But, at last we are negotiating over numbers and formulas and chairpersons. This is good. For the IMF cannot be effective and legitimate until the new balance has been achieved, and the elders have given up their seats to the younger powers.