TWN Info Service on Finance and Development (May08/05)
8 May 2008
Third World Network

IMF REFORMS ITSELF, A LITTLE

Developing countries have been given a little more say in the International Monetary Fund (IMF). It is still a small step, but the biggest such in the last 60 years. The rich countries have so far had 60.57% of voting rights in the IMF. The reform on last week reduces that to 57.93%.

Please find below a short IPS report on the IMF reforms. It was published in SUNS # 6467, Monday, 5 May 2008.

With best wishes
Martin Khor
TWN

IMF Reforms Itself, A Little
By John Vandaele, Brussels, 29 April 2008 (IPS)

The poor have been given a little more say in the International Monetary Fund (IMF). It is still a small step, but the biggest such in the last 60 years.

The rich countries have so far had 60.57% of voting rights in the IMF. The reform on Monday reduces that to 57.93%.

For many developing countries and NGOs, this is still not enough, but it is the biggest single change in voting rights in favour of developing countries in the IMF, which was set up in 1946.

Members of the IMF had time until April 28 to approve the proposal to give developing countries more power in the institution.

IPS was told that the proposal has been approved with 92.93% of the vote, comfortably more than the minimum of 85% needed for the new division of voting rights to enter into force.

Important IMF members like Russia and Saudi Arabia voted against the proposal, because it meant that their voting weight is reduced. But the opposition from them was not strong enough to keep the decision from being taken.

Developing countries have been complaining for many years that they do not have enough power within the IMF. Nor do many of them believe that the Fund is really for their good.

For that reason, some developing countries have amassed enormous financial reserves to make sure that they will not need the IMF any more in case of a financial crisis.

IMF assistance to many countries in need in the past has been given with conditions that have brought long-term damage for short-term relief. The most controversial of these were the Structural Adjustment Programmes that the IMF demanded in return for rescue loans.

These adjustment programmes meant in effect a lowering of import barriers and a move towards a supposedly free market economy that frequently harmed local industry and produce. Such reforms are usually referred to as the Washington Consensus - over which there is now little consensus.

The growing clout of the developing countries against such impositions, and the increasing strength of their economies, raised the pressure on the IMF to reform.

In 2006, the voting rights of South Korea, Mexico, China and Turkey were increased. This week, a second important step was approved.

As a group, developing countries now see their share of voting rights grow from 31.7% to 34.49%. Most of the increase goes to the emerging economies, that now have 25.64% of the vote within the IMF instead of the 23.88% earlier.

Countries like Brazil, China and India get more voting power, while Saudi Arabia and Russia have to make do with less. The share of the majority of low income countries has improved from 8.45% to 9.61%.

The transition countries, the former Soviet Union states, see their share drop slightly from 7.09% to 6.82%.

The most influential members of the IMF remain the US, Japan, Germany and a group headed by Belgium consisting of Turkey, Austria and several Central and Eastern European countries.

The IMF managing director has always been from a European country, by way of an agreement among the developed countries.