We’d like to claim some credit.
This blog was co-authored by Gawain Kripke and Jo Marie Griesgraber, the Executive Director of the New Rules for Global Finance Coalition.
“Victory has a hundred fathers and defeat is an orphan.”
Sometime this month, “historic and far-reaching” reforms to the governance of the International Monetary Fund (IMF) came into effect. Finally. The reforms included a doubling of IMF capital (to about $659 billion) and a major shift in power toward dynamic emerging markets and developing countries.
With leadership from the Obama administration, a reform package was negotiated and announced at the G20 Summit in South Korea in 2010. The reform had to be approved by 85 percent of the voting shares of the IMF – which means the US (with 17 percent of voting shares) was required to ratify the reform. The Obama administration asked Congress to approve it. And then nothing happened and the reforms sat on the shelf, growing stale. The emerging powers, who had pushed for reform and rightfully expected to gain influence in the process grew impatient and frustrated, until progress began anew in December of 2015.
Reforming the IMF has been a goal of civil society activists, including New Rules for Global Finance, Oxfam, and hundreds of organizations around the world who have worked for decades; through campaigns to cancel debts of the poorest countries (at least since 1982), to reign-in IMF neoliberal economic policies, and to raise the voices of poor people and poor countries.
The Wall Street Journal provides a tick-tock account of the last-minute wrangling to get the IMF reform deal through the US Congress, and credits US Treasury Secretary Jacob Lew and Stanford economist John Taylor as midwives for the final labor. And fair enough, they deserve credit.
But the activists and campaigners deserve much credit as well for pushing ideas – not for weeks or months, but for years – through thick and thin, and against huge odds. Among others, Afrodad, Bretton Woods Project, Center of Concern, Debt Relief International, Eurodad, Friends of the Earth, Jubilee South, Latindad, Brookings, Centre for International Governance Innovation, Korean Development Institute, then-Overseas Development Council, and the Peterson Institute for International Economics. These organizations, think tanks, and activists argued, campaigned, needled, cajoled, and prayed. The Bretton Woods Project has arguably the best website outlining the years of effort. And special recognition should go to Ralph Bryant of Brookings and Ted Truman of Peterson for crunching numbers for alternative quota formulas faster than IMF staff.
The reformers and activists worked with any “unlikely partner” we could: Chambers of Commerce, businesses, and think tanks of all political persuasions. And the Bretton Woods Committee coordinated sign on letters with major US businesses.
The US Congress, in all its dysfunction, was the final hurdle to the IMF reform. Nothing seems to work with Congress these days. Not logic, not national interest, not politics. The dysfunction has its own logic and momentum that is only relieved in rare moments, usually during a crisis and outside of the view of the public. We could try to explain it, but it doesn’t make any sense.
The delay had real costs. The US lost real stature and influence in the years the reforms languished. The emerging economies decided to launch their own BRICS bank, and China, with others, launched a new Asian Infrastructure Investment Bank. These institutions will compete with and probably reduce the influence of existing institutions like the IMF, where the US dominates. And the US is not a stake- or shareholder in these new institutions.
Still, after all of this, the reforms will now happen, and they will have benefits. The largest emerging market economies –China, India, Brazil and to some degree Russia— will gain additional voting shares corresponding to their growing share of the global economy. The US will reduce its share from 17.8 percent to 17.4 percent – which is still a functional veto power (85 percent voting share is required). And the poorest countries did not lose shares.
In addition, the European countries have been compelled to give some power at the Board. This was done with some juggling—Belgium and the Netherlands will now share a seat; Switzerland rotates with Poland; Austria gave up its chairmanship so now Turkey; and Slovakia and Hungary will rotate the chairmanship of a group. These adjustments have not reduced the total European chairs, but will bring new faces to the table.
The third accomplishment of the reform is the doubling of the IMF’s core resources. This was done by IMF Board approval of a decision to double the SDRs (Special Drawing Rights), the internal currency of the Fund. The creation of the money by “fiat” does not cost anyone any money; but it does increase liquidity when the SDRs are loaned to member-states in the form of the leading currencies (dollars, euros, yen) that determine the SDR’s value.
There are some complexities, but overall, IMF governance is better: more votes are managed more equitably, reflecting the changes in the global economy, giving a stronger stake to newcomers while gently phasing out old powers. Best of all, nothing has been taken from the poorest.
In this work, successes are rare and it’s important to recognize them. And to give credit where it is due. In this case, we want to pat ourselves on the back and raise a toast to the hundreds – literally hundreds – of activists and organizations around the world that have contributed to a significant global governance reform.