In a budget agreement reached this month, the U.S. Congress
declined to approve
a package of reforms for the International Monetary Fund (IMF) that the fund’s members agreed to four years ago. In an email interview, Daniel McDowell
, assistant professor of political science in the Maxwell School at Syracuse University, explained the state of efforts to reform the IMF.
WPR: What has been the recent state of efforts to reform the IMF?
: In a word, stalled. The most recent push for reform began within months of the onset of the 2008 global financial crisis. The crisis revealed that the fund’s resources were far too small to deal with systemic crises in today’s massive global financial system. In an effort to bolster the IMF’s ability to deal with the European debt crisis and potential future instability, the fund asked its major shareholders for short-term loans. Meanwhile, it began the process of formally reforming fund quotas (each member country’s financial contribution to the organization) as well as the nature of the executive board (the institution’s key decision-making body). The U.S. was the driving force behind these reform efforts. In December 2010, an agreement was reached that would permanently double fund resources to $720 billion and make all 24 executive director positions on the board elected. Historically, five countries—France, Germany, Japan, the U.K. and the U.S.—have had the right to appoint directors, ostensibly crowding out representatives from other countries. The initial ratification deadline for these reforms was October 2012. While the vast majority of member countries signed off on the changes by that date, the reforms have repeatedly run into problems in the U.S. Congress. Multiple requests to Congress by the U.S. Treasury to pass the reforms have failed to produce results.
WPR: How will the U.S. Congress' omission of IMF funding in the recent budget bill affect the process?
: It will prolong it. The fact of the matter is, IMF reform cannot move forward without U.S. approval of the reforms. And U.S. approval of the reforms goes through Congress. Quota reform and amending the Articles of Agreement—which the executive board reforms will entail—require an 85 percent supermajority vote from fund members. The U.S. possesses nearly 17 percent of the fund’s vote share. This means that without American support the reforms go nowhere. The Obama administration is prohibited by U.S. law from approving any such changes without congressional authorization.
WPR: What steps can the IMF and its member states take to move the process forward?
: Complain—that is about all they can do at this point. The Obama administration and Treasury are already embarrassed by this, however, so even that is not likely to accomplish much. IMF reform has unfortunately fallen victim to the polarized budget battles in Washington. Historically, getting congressional approval for similar reforms has never been a cakewalk. However, in today’s climate, it is more difficult than ever. Treasury is likely to ask Congress to consider the reforms again and again until, eventually, they pass and the reforms move forward. Yet, given the current state of affairs, Republicans in Congress may look to use approval of reform as a bargaining chip to gain concessions from the administration elsewhere. How long all this will take is anyone’s guess. In the meantime, IMF reform will continue to be held hostage by domestic political squabbling in the U.S., and countries like Brazil, China and India will have to wait for changes they believe are long overdue.