A group of influential Washington-based academics have urged IMF member countries in a letter to vote against a proposed new voting formula, arguing it falls far short of what is needed to give emerging and developing nations a bigger voice in the institution.
The March 26 letter by the eight academics to the International Monetary Fund’s (IMF) executive board comes ahead of a key meeting on Friday to decide whether to recommend the formula to the IMF’s board of governors for approval. The governors are finance ministers or central bank chiefs from the Fund’s 185 member countries.
The group of academics includes Nancy Birdsall, president of the Center for Global Development, Ralph Bryant, Colin Bradford, Homi Karas, Johannes Linn of the Brookings Institution, Ted Truman and John Williamson of the Peterson Institute for International Economics, and Jo Marie Griesgraber of the New Rules for Global Finance Coalition. Many of them have worked for either the World Bank or the IMF or previous US administrations and are widely respected for their insight into global economic and development issues. “We write to express our concern that the proposed reforms fall far short in addressing the challenges facing the IMF in its evolution toward a truly global institution with more balanced and inclusive representation and voting power,” they said. “In the absence of stronger reforms, the emerging market and developing economies will not be sufficiently engaged in the fund to help generate the energy and dynamism required to strengthen the global financial system and to renew the leadership role of the IMF in the global economy.”
The aim of the overhaul of the formula is to reflect the rise of emerging economies in Asia and elsewhere in the global economy by increasing their voting power and membership subscriptions, or quotas. The change would also give the IMF more legitimacy at a time when fewer countries need its emergency loans and big countries are all too often ignoring its policy advice. A bloc of 50 emerging economies represented by Egypt, Russia, Indonesia, IranKenya has rejected the proposed formula, saying it does not shift enough votes from traditional industrial nations -- the United States, Japan and Europe and – to emerging and developing countries. Still, they acknowledged the formula would probably be approved by the board on Friday, with large emerging economies China, India, Brazil, Mexico and South Korea satisfied their voting power will rise enough.
The academics said while progress had been made, the changes were not ambitious enough to restore the IMF’s standing as a truly global organization, at a time when developed countries are the center of global financial turmoil and emerging economies are important sources of economic growth. “Taken on its own, the formula generates changes in shares, that are widely accepted as moving away from rather than toward a closer alignment of voting structures with economic realities,” they wrote. The group urged “supporters of a strong and viable IMF” should vote against the reform package when it comes before the board of governors later this year for formal adoption.
Ralph Bryant, a senior fellow at Brookings, said the formula was “deficient” and he was concerned, that if it was approved in its current form it would “take people’s feet away from the fire” and diminish prospects of revisiting the issue anytime soon. Birdsall, who heads the Center for Global Development think tank, said although the changes may represent some progress “they really don’t go to the heart of the matter, which is how do you transform the fund from a trans-Atlantic institution to one where you get full engagement not just of rising Asia, but how you get back to a sense of a fund as a global cooperative.” “In the end, the traditional powers will lose out if they don’t push harder now to create and ensure an institution, which the developing countries are engaged and feel they have more power and influence,” she added. (Reuters)