TWN Info Service on Finance and Development
IMF reform is less than what is claimed
The Bretton Woods Project
It challenges the claim that the agreement reached on IMF governance reform by the IMF Board (following the G20 finance ministers' meeting on 23 Oct) would shift the voting rights to developing countries by 6 percentage points. Actually the voting rights of the "advanced economies" would be reduced by only 2% or 2.6% and the rest of the shift in votes would come from a reduction of the share of other developing countries.
The basic power structure
of the IMF will better incorporate large emerging markets, but it will
also continue to see dominance of the
We reproduce below the full article of the Bretton Woods Project below, which is also available at: http://www.brettonwoodsproject.org/art-567128
With best wishes,
Less than meets
the eye: IMF reform fails to revolutionise the institution
IMF managing director Dominique Strauss-Kahn called recent agreements reached on IMF governance reform "historic". However, a closer analysis reveals that the shifts in votes are smaller than claimed and though the basic power structure of the IMF will better incorporate large emerging markets, it will also continue to see dominance of the US and Europe.
Two related agreements
on IMF reform were reached, one in the G20 group of countries and one
in the IMF board. These reforms bring to a close the IMF governance
reform process launched by the G20 in a finance ministers' meeting in
In late October, G20 finance ministers meeting in Gyeongju, Korea agreed to "shifts in quota shares to dynamic [emerging market and developing countries] (EMDCs) and to underrepresented countries of over 6 per cent, while protecting the voting share of the poorest, which we commit to work to complete by the Annual Meetings in 2012." They also agreed to "a comprehensive review of the [quota] formula by January 2013" and "greater representation for EMDCs at the executive board through two fewer advanced European chairs" and "moving to an all-elected Board."
In early November, the IMF board formally approved the shift in quota shares, which will now have to be ratified by finance ministers and, in many countries, by parliaments. The all-elected board will require an amendment to the IMF's Articles of Agreement, again something that will require approval by member state parliaments, which explains the long delay for implementation.
False presentation on quota
The IMF has trumpeted
these changes as historic, with the 6 per cent figure headlining news
reports. The changes will make
The IMF's faulty classification
of countries also makes the net shift to developing countries look bigger
than it really is. Like the World Bank's reforms earlier in the year
(see Update 70),
the IMF has included South Korea and Singapore in the group of emerging
markets and developing countries benefitting from the shift. This is
despite the IMF's own flagship analytical report, the World Economic
Outlook (WEO), classifying
Strauss-Kahn called the November agreement "the biggest ever shift of influence in favour of emerging market and developing countries" which is again not bourne out by the evidence. Even by the faulty classification, the 2008 agreement on governance reform (see Update 60) shifted 2.7 per cent of votes to developing countries, a bigger shift than the 2.6 per cent agreed in early November.
The November agreement
also marks a formal reneging by the IMF board on its 2008 promise to
reform the IMF quota formula before it was used again (see Update 72).
The flawed formula, which was only agreed for temporary use in 2008,
has been hotly contested by the G24 group of developing countries as
improperly specified. To get over the flaws in the quota formula, this
time it was not applied in a straightforward way to decide who would
get shares, with GDP weights and compression factors used to determine
the number of countries that would be eligible for increases to achieve
the final list of 54 countries that would gain from the process. Developing
countries losing voting share include
Promises unfulfilled on decision rules
The agreement also
leaves in place the
Inside sources at the
IMF have indicated that some of the large developing countries opposed
proposals made by Europe to lower the special majority voting threshold
to eliminate the
When Strauss-Kahn was
campaigning to be selected as managing director of the Fund he had explicitly
promised the use of double majority decision making at the board as
one of the reforms he would implement. This would be a roundabout way
to soften the unique nature of the
Mischief at the executive board
The G20 agreement on
board seats has also been in dispute, with it being unclear whether
The board seat controversy
had flared up over the summer (see Update 72), with Europeans
resisting a move by the
A e-mail from an IMF official said "as the regular election of executive directors was not complete by October 31, 2010, those elected executive directors sitting at that time shall continue in office until their successor is elected. I would note that it is expected the 2010 election will become effective in late November. Until the election becomes effective, the executive board will continue to exercise all of its ordinary functions. Decisions of the board will continue to be posted on the Fund's external website, following standard practice."
Peter Chowla of UK NGO Bretton Woods Project noted the failure of the IMF to make public disclosures about the stuation of the board. "This complete lack of transparency about the process for the selection of the board is a bit worrying. In March the IMF's new transparency policy took effect, but it seems to have no effect on the Fund's operations - despite the supposed 'overarching principle that it will strive to disclose documents and information on a timely basis unless strong and specific reasons argue against such disclosure'."