Perhaps paradoxically, his resignation may provide new impetus for finishing a deal on representation (the reform of s-called quota votes) quickly rather than undermine the process. The members’ initial self-imposed deadline to determine a new quota formula was the October 2007, which coincides with De Rato’s planned departure. His upcoming resignation will give him the freedom to act strategically, and indeed, to consider his legacy in the post. This may provide an extra incentive to help personally mediate a deal amongst coalitions of developed and developing countries.
The conditions for an outcome in the coming months look even better when one notes that the Managing Director of the IMF is not the only actor set to change after the autumn meetings. At the end of 2007, leadership of the G20 will pass from South Africa – the current chair – to Brazil. Under the leadership of Trevor Manuel and the Ministry of Finance, South Africa has made good progress on bridging the gap among members expectations on what a new quota formula should contain. The combined effect of the departure of these two critical players to the reform process might just give the push needed to make sure that the reform circle is squared before Ministers of Finance descend on Washington in October for the annual meeting.
Despite this confluence of positive conditions, there remains a risk that the reform deal could become sidelined by debates over the leadership succession process, which is ongoing. Should this happen, there are a number of risks that loom if the autumn 2007 deadline is missed and negotiations spill over into 2008. First, 2008 is the year of the US presidential elections, and as American attention is diverted to presidential politics, the likelihood that the US Treasury or the Congress can continue to support a delayed IMF reform process will probably decline. Lack of US support for a deal would sound an immediate death knell for the reform process. There is also a risk that new data on GDP measured in purchasing power parity (PPP) terms, due out at the end of the calendar year, could make reaching a deal on how to incorporate GDP in the formula more difficult.
De Rato’s resignation provides both opportunities and risks for the reform of IMF representation. If all parties focus their efforts on helping members to decide the last critical pieces of the new formula in the months before October, risks to the reform process looming at the end of 2007 and start of 2008 could be avoided. Most importantly, an equitable deal on representation would serve the global economy, and developing countries, well in the longer run.