IMF Voting Shares: No Plans for Significant Changes

For Immediate Release

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Alan Barber
Domestic Communications Coordinator
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Dan Beeton
International Communications Coordinator
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IMF Voting Shares: No Plans for Significant Changes

WASHINGTON - The
International Monetary Fund (IMF's) governance structure is much more
reflective of the world of 1944, when it was established, than of the
world today. Since 85 percent is needed in order to amend the IMF's
charter, and for some other important decisions, the United States'
16.7 percent of voting shares gives it direct veto power over much
important decision-making and potential reforms. More importantly, the
United States together with other high-income countries has a solid
majority. For the past 65 years, Europe and the rest of the high-income
world have almost always voted with the United States within the Fund.

Thus, the high-income countries effectively run the organization, with
the U.S. Treasury as the principal overseer (despite the fact that the
managing director of the IMF is by tradition a European). Low and
middle-income countries have almost no significant voice.

There have been efforts for many years to reform the governance
structure of the IMF. These finally bore fruit in the Singapore reforms
of 2006.  Figures 1 and 2
show the voting shares of the IMF before and after the Singapore
reforms. As can be seen from the figures, after twelve years of efforts
by reformers, the change is very slight. The United States share fell
from 17 to 16.7 percent. China, which has the world's second largest
economy and 1.3 billion people, went from 2.9 percent to 3.6 percent.
South Korea and Singapore (combined) went from 1.2 percent to 1.7
percent. The rest of the changes were much smaller and basically
insignificant. High Income countries went from 52.7 percent to 52.3
percent, maintaining their majority control over decision-making. On
the other hand the BRIC (Brazil, Russia, India and China) countries
plus Mexico went from 10.1 percent to 11.1 percent. The rest of the
world (163 of 185 countries) dropped 0.5 percentage points from 37.1
percent to 36.6 percent.

Figure 1: Pre-Singapore (2006) IMF Voting Shares

* High Income Oil Producers Includes: Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Brunei, Bahrain
♦  High Income Countries
♦  BRIC (Brazil, Russia, India China) Countries Plus Mexico
♦  All Other Countries (163)
Source: IMF, 2008. "Report of the Managing Director to the
International Monetary and Financial Committee on IMF Quota and Voice
Reform." <<http://www.imf.org/external/pp/longres.aspx?id=4242> >

A number of governments have raised
objections to giving more money to the IMF without a change in its
governance structure to assure some significant representation to
countries other than the handful that currently control the Fund. At
the G-20 meeting in London on April 2, the G-20 communiqué included a
statement that was interpreted as saying that the head of the IMF will
no longer have to be a European. However, without a significant change
in the voting structure, it is not clear that this symbolic change will
give developing countries any more voice or lead to any significant
reforms or accountability at the Fund.

Figure 2: Post -Singapore (2006) IMF Voting Share Reforms

* High Income Oil Producers Includes: Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Brunei, Bahrain
♦  High Income Countries
♦  BRIC (Brazil, Russia, India China) Countries Plus Mexico
♦  All Other Countries (163)
Source: IMF, 2008. "Report of the Managing Director to the
International Monetary and Financial Committee on IMF Quota and Voice
Reform." <<http://www.imf.org/external/pp/longres.aspx?id=4242> >

On
April 25-26, 2009, the World Bank and IMF held their semi-annual Spring
Meetings in Washington, and the question of governance reform became
more prominent. During the Annual Meetings in Singapore in 2006, it was
agreed that there was a need for further changes. Last year the Board
of Governors of the IMF agreed on additional changes in voting shares,
but these have not yet been implemented. 

Figure 3: IMF Voting Shares After Reforms Currently Under Discussion

* High Income Oil Producers Includes: Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Brunei, Bahrain
♦  High Income Countries
♦  BRIC (Brazil, Russia, India China) Countries Plus Mexico
♦  All Other Countries (163)
Source: IMF, 2008. "Report of the Managing Director to the
International Monetary and Financial Committee on IMF Quota and Voice
Reform." <<http://www.imf.org/external/pp/longres.aspx?id=4242> >

Figure 3 shows voting shares for IMF
member countries if the second round of reforms were to be
implemented.  As can be seen, the changes are again very slight. The
United States keeps it's voting share of 16.7 percent. The group of
high-income countries maintains its majority, with 50.9 percent - down
1.8 percentage points from present. This majority is more than enough
to ensure their unchallenged control, since there will always be some
low- and middle-income countries that join with the high-income
countries, given the enormous disparities of wealth and power both
inside and outside of the institution. The BRIC countries plus Mexico
pick up just 0.6 percentage points, while the 163 remaining low- and
middle-income countries pick up 0.9 percentage points.

Conclusion

It is clear that the proposed changes in the voting shares of the IMF
will not significantly alter the balance of power within the
organization. This could have adverse consequences for countries that
borrow from the IMF, and are subject to its conditions. The Fund first
encountered serious pressure for reform after its mishandling of the
last set of major financial crises, which began in Asia and spread to
Russia, Brazil, Argentina, and other countries.[1]  

It is difficult to find evidence that Fund officials have been held
accountable for any of the major mistakes that they made. Part of the
reason may be that the governments who control the Fund do not have any
compelling incentive to hold the Fund accountable for mistakes that
negatively impact other, less well-off countries. In fact, the
incentives are in the opposite direction: to do so could call attention
to mismanagement of the Fund, with the risk that culpability could
eventually be laid at the doorstep of the G-7 governments that are the
decision-makers.

Most recently, nine agreements negotiated by the Fund since September
of last year contain pro-cyclical conditions, despite the severity of
the current world downturn; some of these conditions would appear to be
inappropriate.[2]

The lack of governance reform could also have adverse consequences for
the rest of the world, which might benefit from reform of the IMF.  For
example, the IMF publishes numerous working papers and research
articles, conducts Article IV consultations with member countries, and
twice annually publishes the World Economic Outlook, which includes
economic forecasts and analysis of current and projected trends in the
world economy.

The IMF missed the two biggest asset bubbles in the history of the
world - the U.S. stock market and housing bubbles -- despite the fact
that these were quite obvious to economists who took the time to
analyze them.[3]  It has made other serious forecasting errors in specific countries and regions.[4] 
It is possible that the Fund's research and analysis would also show
improvement if it were not controlled by such a narrow range of
interests.


*Mark Weisbrot is Co-Director
and Jake Johnston is an International Program Intern at the Center for
Economic and Policy Research in Washington, DC.

1].
For a review of these policy failures and their impact on the IMF and
its relations with borrowing countries, see Weisbrot, Mark. (2007). "Ten Years After: The Lasting Impact of the Asian Financial Crisis," in Ten Years After: Revisiting the Asian Financial Crisis.
Washington DC: Woodrow Wilson Center for International Scholars. p
105-118, see also, Weisbrot, Mark and Luis Sandoval. (2007). "Argentina's Economic Recovery: Policy Choices and Implications." Washington, DC: Center for Economic and Policy Research.

2] Weisbrot, Mark, Jose Cordero and Luis Sandoval. (2009). "Empowering the IMF: Should Reform be a Requirement for Increasing the Fund's Resources?" Washington, DC: Center for Economic and Policy Research.

3] Baker, Dean. (2002). "The Run-Up in Home Prices: Is It Real or Is It Another Bubble?" Washington, DC: Center for Economic and Policy Research, and Baker, Dean. (1997). "Saving Social Security With Stocks: The Promises Don't Add Up." Washington, DC: The Century Foundation.

4] See Weisbrot, Mark and David Rosnick. (2007). "Political Forecasting? The IMF's Flawed Growth Projections for Argentina and Venezuela." Washington, DC: Center for Economic and Policy Research; Baker, Dean and David Rosnick. (2003). "Too Sunny In Latin America? The IMF's Overly Optimistic Growth Projections and Their Consequences." Washington, DC: Center for Economic and Policy Research; and Rosnick, David. (2009). "Troubled Assets: The IMF's Latest Projections for Economic Growth in the Western Hemisphere." Washington, DC: Center for Economic and Policy Research.

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