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IMF Governance Reform: Real change still years away

The front page of today’s Financial Times carried another story on the impending reform of the governance of the IMF.   But where’s the news? 

The article repeats what has been in the press since at least April (see article in the FT on the topic in both June and April) and has been commented on this blog previously: the upcoming annual meetings of the Bretton Woods institutions in Singapore will provide a chance for the approval of some minimal reforms of the institutions' governance structure (an increase in so-called ‘quota’ votes for four large and under represented countries – Mexico, South Korea, Turkey and China) and will start a process on further reform of both the formula that determines a country's quota of representation and the representation of low income developing countries.

Whether this happens is still an open question.  There is serious resistance from some members, most notably small European countries who currently enjoy disproportionate representation relative to their economic weight, to open a discussion on the quota formula.  The two year time table for approval of governance changes that Managing Director Rodrigo Rato mentions in the article, and that was decided at last week’s executive board meeting, provides plenty of time for the world to forget about this promise, which will inevitably become mired down in political bargaining among the Fund’s most important shareholders (and potentially their national legislatures). 

The promise to address the voice of the poorest countries too is relatively empty.  Rumours are that the proposals on the table include the possibility of doubling or tripling the ‘basic votes’ of poor countries to increase their representation as well as providing directors from African nations more access to the management (a proposal which has been met with criticism from other regions).  However, even with a tripling of basic votes, it is questionable whether the poorest countries will actually enjoy more power: they will remain far less important to the Fund’s governance than large shareholders and the institutional weaknesses of their representation, previously noted by many scholars of the IMF, will remain.

Since the article contains little new information, it is more likely that Rato has agreed to be interviewed on the topic in order to force some recalcitrant members from reneging on their promises to consider further governance reform after Singapore.  But the news should not be overblown.  This is not, as the FT quotes, a ‘fundamental’ change of the institutions, though it may be the ‘most far-reaching’ governance reform considered since the institutions’ founding (a record not very difficult to beat).  If the promised review of quota and basic votes is carried out, any ‘fundamental’ change to the institutions is still at least two years, and many fraught and politicised negotiations, away.