The IMF, newly flush with a huge crisis fund, faced pressure Saturday to get moving on promised reforms that give a greater voice to developing countries by reducing Europe's clout. With minor reforms agreed in 2010 not yet in place, the International Monetary Fund's steering committee heard a plea for new action from Brazil after emerging economies stumped up support for the IMF "global firewall" fund.
On Friday the IMF announced that it had raised more than $430 billion for its emergency fund, to be used if Europe's debt crisis sharply deteriorates or in case of other countries' dire needs. More than half the amount came from Europe. A portion, although the numbers have not been revealed, has been promised by the BRICS emerging powers, Brazil, Russia, India and China.
The BRICS are leading the push to increase developing countries' representation at the IMF and the World Bank, its sister institution, to reflect their growing importance to the global economy. Now that the emerging powers have come forward in Europe's time of need to support the IMF, a lender they criticise for being overly dominated by the United States and Europe, there are concerns that the IMF may take the money and run.
The IMF and the Group of 20 major economies have acknowledged the need for a new IMF formula on quotas, or voting rights, and governance that better reflects members' relative economic weights. But the 2010 agreement that slightly shifts the voting weighting in the IMF board and improves governance, remains far from gaining the needed level of endorsements from member governments to be implemented.
A key barrier remains because the United States, by far the single largest shareholder in the IMF, has not yet ratified the 2010 deal. The White House has yet to even submit the deal to Congress for approval. Yet in March, bowing to a promise to the BRICS and others, the IMF began formal discussions for a new quota formula, with a target set of having it crafted by January 2013.
IMF chief Christine Lagarde has set a target of having the 2010 reforms entered into force by the Fund's October 2012 meetings in Tokyo, to clear the way for the next quota rewrite. The G20 endorsed that position. But the reality is that political opposition by the US Republican Party could easily prevent Congress from ratifying the deal, leaving the IMF stuck with one unimplemented reform package while some key members are pushing the next one.
Brazil, unhappy with the limited changes of the 2010 deal, called Saturday for action on the new quota rethink. "The reluctance that some countries are demonstrating in following through with the agreements we have on the comprehensive review of the formula is deeply damaging to this institution and to these countries' own credibility," Brazil's finance minister, Guido Mantega, told the International Monetary and Financial Committee (IMFC).
He pointed out that Brazil, the world's sixth-largest economy, had voting power equivalent to the much tinier Netherlands. The Indian finance minister, Pranab Mukherjee, also urged greater movement at the IMF-World Bank spring meetings in Washington.
"Quota reforms should not be delayed and the two arrangements for 2010 should be explicitly implemented and negotiations on new formula which have to be completed by 2014 should be initiated," Mukherjee said Thursday. The reform process at the 188-nation institution is Byzantine, with a complex formula of voting rights and, for some countries, the need to get legislative approval. A US official, speaking on condition of anonymity, said late Friday there would be no quid pro quo for the IMF crisis-fund donors.
Most of the members of the IMF do not want the new loans to affect the governance reform, including changes to voting quotas, already underway, the official said. US Treasury Secretary Timothy Geithner, meanwhile, called on Europe to deliver swiftly on a 2010 pledge to give up two seats on the IMF's 24-seat executive board to developing countries, which have not been identified.
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