U.S. lawmakers are poised to give emerging economies more of a voice at the International Monetary Fund, ending a five-year impasse that fed criticism of the American-led global monetary order by China and other countries.
House and Senate negotiators on a $1.1 trillion spending plan included language implementing the IMF change, according to the text of the bill. That gives the IMF provision a strong chance of passing Congress later this week and being signed into law by President Barack Obama.
Passage would be a victory for the Obama administration and Treasury Secretary Jacob J. Lew, as they seek to maintain the strength of Washington-based international institutions like the IMF while China seeks alternatives such as the new Asian Infrastructure Investment Bank.
The IMF’s executive board approved a plan in 2010 to increase the voting share of emerging economies and double the amount of permanent funding available to the Washington-based fund. While supported by the Obama administration, the changes require ratification by Congress, and Republican opposition has prevented the IMF from implementing the changes.
Some Republican lawmakers had previously said the shift would give too much influence to countries that don’t share U.S. interests, while others questioned the need for international bailouts.
Emerging-market leaders had warned the IMF would lose legitimacy if its voting structure didn’t reflect the growing economic clout of countries such as India and China. The delay was cited as one of the reasons that China established the AIIB, a development lender similar to the World Bank.
Veto Power
The changes require approval by countries representing 85 percent of the board’s voting power, allowing the U.S., with its 16.7 percent voting share, to exercise its veto.
China, the world’s second-largest economy, currently ranks sixth in voting shares at the IMF, behind the U.S., Japan, Germany, France and the U.K. Under the 2010 plan, China would jump to third, while India would climb to eighth from 11th and Brazil would move up four spots to 10th.
The IMF was conceived during World War II to promote international monetary cooperation and exchange-rate stability. It has evolved into the world’s lender of last resort for countries facing capital crises.
The fund is primarily financed by shares, known as quotas, assigned to its 188 member countries. The 2010 proposal would increase the proportion held by emerging economies.
The plan would give emerging countries two more seats on the 24-member executive board, by removing two seats currently headed by representatives from advanced European nations. All executive directors would be elected by member countries.
The proposal also would double the number of total quotas, while rolling back by a corresponding amount a credit line funded by 38 governments and central banks. The credit line was increased during the global financial crisis to give the fund more power to help countries in crisis.
Bloomberg