When an event takes place, long after it is overdue, much of the novelty, not to speak of sensation, wears off. It does not lose the significance, but bemoans the delay in happening at the opportune time. More worrying is the fact that it may have been overtaken by developments that would have been unnecessary had timely steps been taken. It is worrying because the intervening developments may have undermined the importance of the institution to which the event relates.
The above thoughts will come to mind of those who have been observing the goings-on in the two behemoths of the global financial architecture. Needless to say that these two are the World Bank and the International Monetary Fund (IMF), the twin sisters of Bretton Woods. Established after the Second World War to meet the needs of war-torn global economy, the two institutions lost their usefulness with the emergence of new economic powers, particularly after the new millennium. In keeping with the changing global economic landscape there was demand for re-structuring those two institutions that had fallen behind time. Resistance from developed countries of the West which controlled these institutions was stubborn and persistence. Despaired of reforms any time soon, the newly emerging countries that came to be known by the rubric BRICS (Brazil, Russia, India, China and South Africa) promoted and established a new development bank and a new financial institution that bore strong resemblance to the World Bank and the IMF. It jolted the policy makers in America and western Europe out of their complacency.
The World Bank remains unchanged in its structure and functioning, at least for the present. The IMF, however, has seen some changes, a sign that though belatedly demands of critics have been taken into account and responded to. As a result of the reforms just introduced, China, India and Russia will soon speak with a louder voice at the IMF meetings and take a greater part in decision making.
After years of opposition, the US Congress has dismantled the final barrier to reforms that will give the emerging economies greater say in the affairs of the 188-nation global crisis lender. The IMF reforms are part of a $1.1 trillion spending package approved by the US Congress recently and signed into law by the American President. Adopted in 2010 by the international community, the reforms were expected to take effect in 2012. But with America holding the largest share of voting rights at the IMF, Congress's refusal to approve the reforms had held up their implementation, much to the dismay of IMF management and members other than those from Europe. To the credit of President Obama it has to be said that he was serious about the reforms as was the majority members of his party. But the opposition Republicans, who controlled the Congress, blocked the amendment of the relevant law. It seemed that the Republicans were against the slightest reform of IMF lest America's control over it was diluted.
In recent years international summits have unfailingly included a pointed reminder about the stalled reform process. It was all the more frustrating since America was among the first countries to call for reforms of IMF in 2010 when the global economy was in the grip of a great financial crisis. At the end of their last summit in mid-November 2015 in Turkey, the Group of 20 economic powers expressed their deep disappointment with the delay in reforms and urged America to ratify the reforms as soon as possible.
The approval by the US Congress has eased the frustration of most of the member countries with the IMF dominated by the US, Europe and Japan. This has also removed a major headache and a cause of embarrassment for the Obama Administration. The IMF reforms do not take away the central leadership role of America in the global economic system but are crucial for IMF. They double its permanent financial resources, known as quotas, to some $660 billion. The approval by the US Congress paves the way for the IMF to abandon the makeshift mechanisms it had adopted to keep the finances afloat and finance rescue of member countries in crisis. But most importantly, it allows IMF, founded in 1945, to better reflect the prevailing architecture of the world economy, particularly its interconnectedness highlighted by the 2008 global financial crisis.
The reforms measures reflect the reality of the present-day global economy. These slightly reshuffle the IMF executive board by reducing the representation of advanced economies to give a greater voice to the emerging countries. Currently, China, the world's second largest economy, has less than 4.0 per cent of voting rights at the IMF, slightly less than Italy whose economy is five times smaller than that of China. After the reforms are implemented, China will see its voting right nearly double to over 6.0 per cent. India, too, will gain its weight and rise from 2.3 per cent to 2.6 per cent of voting rights. Coming on the heels of the momentous reforms has been the announcement by IMF that China's national currency renmenbi will be included in the basket of currencies, SDR (special drawing rights), used by it. Like a juggernaut the IMF has moved and changed its course at last.
The managing director of IMF, Christine Lagarde once joked out of exasperation at America's dilly-dallying that she would 'do belly-dancing' if needed to please the US Congressmen. Fortunately, she did not have to take that desperate measure. She and her colleagues are now able to face the future knowing that the IMF's governance structure represents today's world much better than it did so long. America would still hold a veto power over major IMF discussion. But an attempt at a new start has been made which is a watershed event. For a 70-year-old institution it is no small thing. Perhaps as a reward for her relentless efforts IMF has nominated Christine Lagarde for a second term. So far there has been no rival candidate to contest with her. But in future the tradition of electing the managing director from among the European candidates only will also figure as part of the reform process. Â
hasnat.hye5@gmail.com
Reform of IMF, at last
Hasnat Abdul Hye | Published: February 18, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
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