IMF reform on hold not good for global affairs
THE US Congress has not approved International Monetary Fund (IMF) reforms because it has refused to ratify a capital increase for the fund which was agreed to four years ago.
Congress omitted funding for the IMF from an approved budget of US$1.012 trillion in spite of intense lobbying by the Treasury and the White House and the urging of all former treasury secretaries since the Reagan era. This means that the IMF funding cannot be approved until 2015.
There are several implications, not the least of which is that it is a defeat for the Obama Administration in its struggle to maintain US influence in multilateral organisations and, in particular, international financial institutions.
It reconfirms a dangerous streak of insularity by the conservatives in Congress, which is not good for global affairs, and also weakens the standing and influence of the US in global affairs, as the international community will be sceptical of commitments made by the While House if Congress is not prepared to honour those pledges.
But, just as crucial is the fact that the decision calls into question the legitimacy and efficacy of the new thrust for more representative institutional arrangements for global governance, such as the G-20.
The failure of Congress to fund the US commitment to the financial pool of the IMF will weaken the role of the fund as the international lender of last resort. This role is particularly important for a growing number of developing countries in the wake of the global financial crisis.
We fear that other countries may take their cue from the US and limit their commitment to the IMF. The US's contribution was part of a package agreed on in 2010 to double the IMF's quotas to a total of US$720 billion.
If the total resources of the fund are not increased it will not be able to meet multiple requests, especially if large developing countries or emerging market economies were to make requests. If quotas are not increased, then as economies grow in size, the IMF's lending capacity will become less useful to economies in trouble to the detriment of borrowing countries and the global economy.
Part of the deal for funding was to shift the voting allocation within the IMF to more accurately reflect the economic weight of countries in the global economy. The developed countries were slated to yield six percentage points of total quota to developing countries, and shift two of the 24 IMF directorships from European to developing countries.
We hope that the US administration will continue to work with Congress on the approval of the necessary legislation so as to allow the authorisation of additional resources for the IMF and to facilitate the reform of IMF governance.