Established alongside the World Bank at the end of World War II in 1944, the International Monetary Fund (IMF) assumed an important role in trying to foster economic stability and global growth. Even if we leave aside the IMF’s controversial approach and the mixed results produced by its approach in achieving the organisation’s stated goals, the very governance structure of the IMF is a major problem, which has recently become the subject of renewed debate.
The IMF in its 70 years has not been able to correct its lopsided internal structure. While currently, 188 countries are described as having IMF membership, they are meant to be represented through a quota system, supposedly based on their ‘relative size in the global economy’. In turn, each country’s quota determines how much it contributes to the IMF, how much it can borrow if it gets into trouble, as well as its overall clout in the organisation. The US has the highest quota in the IMF, giving it veto power. Besides the US, the European Union gets to appoint the managing director of the IMF and also exert significant influence over the sort of policies adopted by it and promoted across countries which rely on its lending and policy advice.
Given the clout of the IMF in determining global economic policies, the Group of Twenty (G-20) major economies have been keen to get greater representation within the IMF. Back in 2010, the G-20 managed to hammer together a deal for quota rebalancing whereby countries like Brazil, China, India, and Russia would become major players within the IMF’s organisational structure.
Despite this agreement, the US Congress still remains reluctant to let the IMF reform process proceed, fearing that such reforms will pave the way for the US losing its global economic hegemony. Given the lacklustre US attitude towards IMF reform, other G-20 members have stated their intention to proceed with reforming the IMF on their own if the US remains reluctant to do so by the end of 2014.
Bypassing the US within the existing world economic order will not be easy and may even trigger a temporary retreat from multilateralism towards regional and bilateral trade agreements. Yet, on the other hand, the IMF in its current form remains an unelected and unaccountable body with too narrow a mandate.
There have been perpetual changes in the global economic structure, which representation patterns put in place decades ago within agencies like the IMF do not accurately reflect. Yet, the mere inclusion of a handful of newly emerging developing countries to enhance the lending capacity of the IMF will not suffice.
Effective economic governance in an increasingly integrated and complicated global economy requires moving beyond technocratic gestures and rethinking the means whereby economic reforms can be made to address the glaring inequalities within and between countries around the world.
The IMF can no longer continue coercing poor developing countries to undertake austerity measures, which essentially curb public sector spending to pay back their international loans while increasing their national debt through the devaluation of local currencies. There is ample evidence proving that such a myopic approach towards economic governance does not produce a stabilising effect on the larger global economy, but instead further exacerbates inequalities and recurring economic turmoil.
Published in The Express Tribune, April 25th, 2014.
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