SINGAPORE - The 184 member nations of the
International Monetary Fund (IMF) formally
approved on Monday a proposal to increase the
voting shares slightly of China, South Korea and
two other developing countries - but critics say
the changes are cosmetic.
The IMF move,
which received more than 90% approval, appears to
be part of the six-decade-old global financial
institution's attempt to reinvent itself amid
strong civil-society criticism and a
looming budgetary crisis.
Earlier in the day, a group of 13
accredited activists created a stir when they
staged a protest against IMF loan conditionalities
inside Singapore's Suntec Convention Center, this
year's venue for the annual meetings of the boards
of governors of the IMF and the World Bank.
The International Monetary and Financial
Committee (IMFC) of the IMF board of governors had
stressed the importance of its "quota and voice
reforms" in a communique after its meeting on
Sunday. The first stage grants four countries -
China, South Korea, Mexico and Turkey - a small
increase in their voting power despite opposition
from 23 developing nations, which fear that their
own voices will be drowned out even further.
A second stage would see further small
adjustments in the voting share of other emerging
economies and poorer nations by early 2008. The
move, said the IMFC, would make significant
progress in "realigning quota shares with members'
relative positions in the world economy" and "in
enhancing the participation of low-income
countries in the IMF". But critics say the four
countries will get only an additional 1.8% in
voting power and rich nations will still control
the IMF.
Ministers from the G24, a group
of developing nations, argue that reforms must
include an early and substantial increase - at
least a tripling - in basic votes (which reflects
the equality of states) and a new quota formula
that accurately reflects the relative size of
developing countries in the world economy.
Activists say the minor tinkering masks
the fact that the IMF and the World Bank are both
facing serious crises. The IMF, they say, faces a
crisis of legitimacy in the aftermath of the East
Asian financial crisis. Its policies were blamed
for liberalizing capital controls, making it
easier for "hot" money to flow into the region and
just as quickly flee at the hint of bad news.
IMF rescue packages led to cuts in
government spending, removal of crucial subsidies,
and a slowdown in the crisis economies, hurting
the poor. With the Russian financial collapse in
1998 and the economic disintegration of Argentina
- a poster boy for failed IMF policies - in 2002,
the crisis of legitimacy deepened. This, in turn,
contributed to an ongoing IMF budget crisis as
borrower nations such as Thailand and Indonesia
paid up their loans and ended their loan
agreements, or declared independence from the
fund. Other developing countries are shunning new
IMF loans for fear of the neo-liberal conditions
attached to them.
The World Bank also
faces a budgetary crisis after a sharp drop in
income from borrowers' fees and bank investments.
Now the IMF is trying to reinvent itself
as an organization that can tackle global trade
"imbalances". The focus of the IMF in future is
not just crisis resolution, but also crisis
prevention, and the vehicle will be the
multilateral surveillance mechanisms, said British
Chancellor of the Exchequer Gordon Brown, chairman
of the IMFC, at a press conference on Sunday.
Brown said the IMFC was united in expressing deep
regret over the suspension of World Trade
Organization (WTO) negotiations, "but we went on
to urge all nations and all members of the WTO to
resist protectionist calls".
After the
IMFC meeting, Brown said he was more optimistic
now of a resumption of the stalled Doha Round of
trade talks after the richest countries pledged to
give US$4 billion in aid to developing countries.
But Peter Hardstaff, head of policy at the
London-based World Development Movement (WDM),
said: "It is not what countries say at the G7
[Group of Seven wealthy nations] or the IMF that
matters, it is what they do at the WTO.''
The WDM carries out research into the root
causes of poverty and aims to change policies that
keep the developing world poor. Hardstaff said
Brown's bullish pronouncements on trade do not
change the fact that the European Union and the
United States are trying to ratchet market access
out of developing countries that could undermine
efforts to reduce poverty. "Without a major shift
in EU and US trade policy, and without a radical
change to the way negotiations are conducted,
there is little point in resuscitating the Doha
Round,'' said Hardstaff.
But it is the
meager voting "reforms" that have left activists
here fuming. Decisions at the IMF require an 85%
majority but the US still holds a 17% voting
share, giving it an effective veto power. Noting
the absence of any fundamental reforms, Stephen
Mandel of the London-based New Economics
Foundation (NEF) said: "It's like rearranging the
deck chairs on the Titanic."
The NEF
describes itself as a "think and do" tank focusing
on people-centered economics. According to his
calculations, Africa, which has only two seats on
the 24-seat IMF executive board of governors, has
a total of only 4.4% in voting power. One of these
seats, representing a constituency of 24 African
countries, has just 1.4% of total voting power.
In comparison, developed countries, making
up only a fifth of the member nations and 15% of
world population, have 60.4% of total voting
power. Further, the poorer half of the more than
180 IMF member nations have a combined voting
power of just 4.2% of total voting power - less
than the share of France.
Voting power
comprises two components: a weighted allowance of
votes based on members' contributions or quotas
and 250 "basic votes" for each country designed to
reflect the equality of states. As quotas have
increased 37-fold since 1944, the share of all
basic votes has plunged to 2.1% of total voting
power - a meaningless level - down from a high of
15.6% in 1958 and 11.3% in 1944, when the IMF was
established.
What the IMF has put forward
in governance reform is paltry, said Jeff Powell,
coordinator of the Bretton Woods Project (BWP), a
London-based watchdog group scrutinizing the IMF
and the World Bank. "So far there is no indication
that the big players [have recognized that they]
are over-represented and are willing to make the
concessions needed to solve the crisis of
legitimacy,'' he said. Powell said eight
United Kingdom-based non-governmental
organizations, including Christian Aid, OXFAM and
the Catholic Agency for Overseas Development, had
instead endorsed a BWP proposal for a "double
majority" voting system under which decisions
would be made by both a majority based on voting
weight as well as a straightforward majority in
terms of number of member countries. Others,
though, would prefer to see an end to the whole
economically weighted voting system that favors
the richer nations.
