In 2010, the International Monetary Fund seemed to finally adapt to new economic realities when the IMF Board of Governors approved IMF quota reforms that provided emerging powers with a greater say. The IMF hailed these steps as “historic” and pointed out that they represented “a major realignment in the ranking of quota shares that better reflects global economic realities, and a strengthening in the Fund’s legitimacy and effectiveness.”
Specifically, the reforms double the IMF’s quota to $720 billion, it shifts six percentage points of total quota to developing countries. China will become the third largest quota-holder at the Fund (second only to the US and Japan), and Brazil, Russia, and India all become top-ten quota-holders as well. Under the reform, U.S. voting power will decrease slightly but it would still maintain its veto. In addition, in reforming the Fund’s Articles of Agreement, the change moves two of the 24 IMF directorships from European to developing countries.
Yet the 2010 reforms are subject to approval by national governments, including a deeply partisan U.S. Congress. The IMF previously had intended to make the 2010 reform package effective by October 2012, but the legislatures of the United States have not ratified the 14th General Review of Quotas package. Prior to the US elections, the Obama administration had decided to put off asking Congress to approve the reform to avoid unnecessary controversy. As soon as U.S. Congress approves it, it will come into effect, yet it seems far from clear when approval will occur. Particularly Republicans are sceptical whether to support the move, which would include extra US sources to the Fund.
While emerging powers have remained patient over the past year, discontent is beginning to spread among those who would stand to benefit most from the changes. The situation is particularly bizarre because a further round of IMF quota reforms is already under discussion and due for completion in January 2014.
In March 2013, almost 100 policy makers and academics sent a letter to US Congress urging the ratification of the reforms, arguing that any further delay would crucially reduce the United States’ credibility in the Fund. It would also reduce confidence that the United States continues to be willing and able to assume leadership in global financial management. What good is a forward-looking President if he cannot convince US Congress of the necessities of reform? Finally, further delay could challenge the narrative that while the United States is willing to adapt global governance structures to new realities, it is mainly Europe that fears the rise of the BRICS.
If the United States truly wants to strengthen global governance, they will have to exercise leadership at home and convince US Congress that engaging emerging powers is the only way of assuring that international institutions remain functional once the traditional powers are no longer in control. The difficult process of adapting to a new reality has just begun. In the coming years and decades, far more extensive IMF reforms will have to be implemented if the institution is to maintain its legitimacy in the twenty-first century.
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BRICS Development Bank: Patience required
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