Developing Countries Need More Influence in IMF, World Bank
October 30, 2007
By: Olivia Soraya Spadavecchia
A review of International Monetary Fund (IMF) share quotas had shown that developing countries’ share of votes, and Africa’s in particular, had declined steadily, South African Reserve Bank head of the G20 unit Jason Milton said on Tuesday.
Speaking at a panel discussion hosted by the South African Institute of International Affairs, Milton urged that this trend be reversed.
Originally established, along with the World Bank (WB), to restore economic stability to Europe after World War II, the IMF has been dominated by industrial countries and in particular by the US and Europe.
Milton noted that developing countries as a group only gained votes within the fund as a result of more countries joining the body.
About a quarter of the fund’s members are subSaharan countries, and this group holds only 4,4% voting power relying on other advanced economy members to lobby its issues.
It was largely suggested that reform programmes to increase the share quota of developing countries, such as the Singapore Four programme in which China, Korea Turkey and Mexico’s voting power was increased by a mere 1,8%, should be augmented.
Milton said that the IMF had started to develop a new quota formula in the late 1990s in order to rebalance the quota, votes and shares. However, despite a committee being established, no recommendations had been presented, he noted.
Another issue warranting reform at both financial institutions was that of leadership – the head of the IMF is currently, and has historically been, a European national and the WB a US national.
Milton also noted that, although the board of the IMF consists of 12 members from developing countries and 12 from developed countries the voting power is weighted in favour of the developed countries.
US-based New Rules for Global Finance executive director Dr Jo Marie Griesgaber echoed the need for both quota reform and an overhaul of IMF management.
Griesgaber described the inequitable voting power of the developing countries as a "democracy deficit" that had created a "legitimacy crisis at the fund.
She noted that low income countries did not benefit from the fund.On the subject of leadership, Griesgaber noted that a third of the chairpersons of the fund were European, and that this needed to be consolidated.
She called for accountability particularly on behalf of senior management – board of governors and MD – and consequences for poor performance.
US-based Brookings Institute director Colin Bradford added during the discussion that previous calls for a revision of the leadership selection process had failed to effect the type of reform that was required, and further steps were needed to ensure that Europe did not dominate the process.
He commented that it would be difficult to carry out reforms if leaders, from different countries, were unwilling to put themselves forward for nomination.
Milton concluded that, despite the many reforms that could potentially revitalise the functioning and legitimacy of the fund, he was doubtful that industrial countries were ready to give up their position and power in the IMF.
The IMF is said to have fulfilled the purpose for which it was originally founded post-war, and the countries that needed it then, last employed its resources in the early 1980s. This has prompted some to call for its dissolution, especially in its current form.
At the discussion on Tuesday Development Bank of China’s Dr Gu Yang said the fund no longer served its original functions as Europe’s economy was stable and its modern day functions of surveillance and the provision of liquidity had been largely absorbed by regional financial institutions.
Dr Gu explained that regional institutions were performing these functions well, and that the IMF no longer served its purpose in this regard. She suggested that, should it remain, it should be focused on the poorest countries and tasked with poverty reduction and alleviation.