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Washington moves to pre-empt 'Asian
IMF'
By Emad Mekay
WASHINGTON - The United States is pushing
the International Monetary Fund (IMF) to change
its voting system to include rising economic
powers in Asia, in what some observers say is a US
bid to keep increasingly independent Asian nations
tied to the public lending institution, where
Washington has the dominant voice.
"If
countries are growing strongly and making
increasing contributions to the global economy,
then there should be a parallel enhancement of
their position in the IMF," said Randal Quarles,
acting undersecretary of the Treasury, in a
statement to the US Congress. "This is vital to
maintaining the goodwill of members, on which the
IMF relies to make its lending possible, and to
preserving the centrality of the IMF in the global
financial system."
His statements came
after ministers from developing nations,
especially in Asia, complained in April that the
current underrepresentation of developing
countries in the IMF and its sister institution,
the World Bank, undermines the legitimacy and
effectiveness of these institutions. They said
that giving the Western industrialized nations
near absolute powers in those institutions, which
have lending programs in many developing
countries, does not reflect the current economic
balance of power. Asian countries are accumulating
huge amounts of currency reserves, giving them the
potential to do without loans from the IMF - where
the United States, as the largest shareholder and
the world's largest economy, has managed to pass
conditions and economic policies favorable to its
interests.
East Asian countries are now
running the world's largest surpluses and have the
world's fastest growth rates. Earlier in May,
China, Japan, South Korea and the 10 members of
the Association of Southeast Asian Nations (ASEAN)
reportedly said they had agreed to expand their
network of bilateral currency trade, creating what
could in effect be an Asian Monetary Fund that
would rival the IMF. Asian countries, and others
in the developing world, have grown leery of the
policies recommended by the IMF and Western
powers. They claim that privatization,
deregulation and public spending cuts that put the
market before social responsibilities - all
staples of IMF lending programs - have alienated
developing nations from the fund and the bank and
caused more problems than they solved.
In his
testimony on Tuesday at a Senate banking
subcommittee hearing, Quarles urged progress on
the IMF votes issue. However, he added that it
should not be linked to an increase in the IMF's
quota resources given the current strength of the
Fund's financial position. Washington is now
proposing shifting quotas within the existing
total. Quotas generate most of the IMF's financial
resources. A few members of the Group of Seven
(G7) most industrialized nations, comprising
Britain, Canada, France, Germany, Italy, Japan and
the United States, hold a majority of the shares
allocated by the quota system. This allows them to
dominate the institution's decision-making
process. The size of the member's quota determines
the country's voting power and the country's
borrowing rights.
But now the United
States says it wants reform at the
Washington-based IMF to reflect the advent of
monetary union in Europe and the increasing role
of fast-growing emerging markets, especially in
Asia. "Change will not come quickly or easily. The
issues are complex, and extensive dialogue and
cooperation will be needed to find a way forward,"
Quarles said. "Yet we believe the effort is
worthwhile - and indeed essential to the long-term
effectiveness of the institution. An IMF for the
future must be an IMF in which all have a stake."
Despite being international institutions
that preach good governance, decision-making in
the IMF and the World Bank is far removed from the
principle of one-country-one-vote. Directors from
countries of the G7 control more than 60% of votes
on the boards of the World Bank and the IMF. The
US has veto power over any extraordinary vote that
requires a supermajority vote of 60% or more.
Critics say this system has deprived more
populous, and now economically successful nations
like India and China, which combined represent
more than 2.3 billion people of the world's seven
billion people, of a real say, while giving
countries like Britain, France and the United
States greater clout.
Many analysts see
the US calls for reform as a tactic to retain
influence within the world's most important
financial institutions, especially as Asian
countries, flush with currency reserves, are
reportedly moving toward more integration among
themselves. If it happens, this will make the IMF
less relevant, they say.
One of the
congressional hearing witnesses, Allan H Meltzer,
a visiting scholar at the American Enterprise
Institute in Washington, suggested the large
accumulation of reserves by Asian countries, as
well as their moves to further advance toward
development of a regional financial bloc, indeed
pose a threat to the Fund. This recognition in the
United States, says one analyst, explains why
Washington is willing to allow Asian nations
greater influence within the existing Fund
structure for the sake of pre-empting any Asian
competition to the IMF.
"The US is going
to give them [Asian countries] as much of an
increase as possible in voice and vote on the IMF
by allowing them to increase their quotas without
the US giving up its dominant share," said Rick
Rowden, policy officer at Washington-based
ActionAid International USA.
"They are
going to say 'okay, okay, we'll give you a little
more say in the IMF', but the Treasury department
is not going to give away the shop and surrender
its dominance on the IMF board," Rowden said. "So
it's really a strategy of co-optation and really a
pre-emption of the Asian Monetary Fund idea." His
perspective is supported by the fact that Quarles
said the US is pushing for a number of other
changes at the IMF.
Key priorities for the
United States, he said, include strengthening IMF
surveillance and crisis prevention; supporting
economic liberalization in the absence of lending;
and enhancing the IMF role in low income countries
to achieve better results - all changes that
appear designed to respond to past criticism of
the IMF's role in an increasingly suspicious
world.
(Inter Press
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