23
Oct
The Bretton Woods institutions have since operated on a quota system, in which countries that were on the top of the economic power chain in the 1940s contribute the most to the funds and have the most voting power. Needless to say, the world has changed quite a lot since then.
Western European countries such as France and Belgium still wield more power than fast-emerging economies like China and Brazil, despite Europe’s continually stagnant economic growth. The IMF announced during the World Bank-IMF Annual Meeting this October that China would overtake the US as the world’s largest economy in goods and services production in 2014—yet the US is still the Fund’s largest shareholder and has more than four times the voting power of China.
A partial rebalancing of IMF shareholders was reached in 2010, but the US Congress has dragged on ratifying the change which would break off some of its majority shareholder status.
IMF Managing Director Christine Lagarde took the opportunity at the Annual Meeting to push the US Government to approve much-needed IMF reforms in the face of growing criticism that the institution does not reflect the current global economic power structure.
Calls for reform have grown louder over recent years and have even been one of the factors in the inception of the BRICS Development Bank—now known as the New Development Bank—between Brazil, Russia, India, China and South Africa. South Africa’s International Relations and Cooperation Minister Maite Nkoana-Mashabane has said that what is imperative about the BRICS bank is that the member states are equal in access, shareholding and representation—a direct critique of the IMF and its Bretton Woods partner, the World Bank, also under fire for outdated representation quotas.
“The 2010 governance and quota reform is an absolute must. It has to be implemented and everybody knows that it is currently stuck before the US Congress,” Lagarde said at the Annual Meeting.
“[The reform] was due in 2012, it was overdue in 2014 and I strongly hope that under President [Barack] Obama’s leadership and with the right understanding of the parties, the role of the IMF warrants that ratification,” she continued, pushing for the ratification to happen before midterm elections in the country.
However she attempted to calm criticisms in the meantime, noting that, “Those under-represented in the quota are not under-represented necessarily in the management circle or in staff or in the highest level of the fund. We certainly pay as much attention to all and not just the big players.” She pointed to Zhu Min, a Chinese national and a Deputy Managing Director, as an example of equal representation in the organisation.
But BRICS countries and other fast-emerging economies are not satisfied—and they shouldn’t be. According to a January 2013 report by the Economist, the value of South-South trade exceeds North-South by roughly $1.2 trillion and accounts for more than a quarter of global trade (the BRICS alone account for 17 per cent of trade). Emerging economy GDPs—particularly in Africa and Latin America—have far outpaced those of Europe and the US. And emerging economies have long accused the dominant West of harmful monetary policies that have led to financial crises in Asia, Latin America, and, most recently, globally in 2008.
Meanwhile, the IMF reforms that have been on the table since 2010 propose a relatively small six per cent shift of shares from overrepresented countries into underrepresented ones. The longer the institution waits on reforms, the more disproportionate this number could become.
Source: http://www.cpifinancial.net/blog/post/28691/bringing-bretton-woods-into-the-new-world-economy