The
US Congress, last week approved the 2016 Appropriations Bill that effectively
put paid to the long drawn issue of International Monetary Fund (IMF) quota and
governance reforms pushed for since 2010. Back in 2010 when the IMF Executive
Board recommended the reforms, then IMF Managing Director, Dominique Strauss-Kahn
described the agreement as a “major step forward in the modernization of the
IMF and its efforts to adjust its structures to the dynamic and changing
realities of the global economy. His successor Christine Lagarde has also
echoed similar sentiments following the authorization to carry out the reforms
by the US Congress. In a press statement, she said, ““The United States Congress approval of these reforms is a
welcome and crucial step forward that will strengthen the IMF in its role of
supporting global financial stability. The reforms significantly increase the
IMF's core resources, enabling us to respond to crises more effectively, and
also improve the IMF's governance by better reflecting the increasing role of
dynamic emerging and developing countries in the global economy.”
But are the quota and voice reforms enough and
is the IMF changing quickly enough to truly reflect the changing geo-economic
global landscape?
No.
No joy for Africa
Africa for all its headline grabbing economic
growth in the last decade as well as increased importance on the global
economic scene as the world economy’s last frontier does not stand to benefit
much from the vaunted IMF quota and governance reforms. The winds of change have left a marked change
on the global economy. Before the turn of the new millennium over 80% of global
economic output was accounted for by advanced economies, but that trend has
changed drastically. By the IMF`s own admissions, developing countries now
account for close to 40% of the world`s output, largely spurred by China and
other fast growing developing countries. (Six of the world`s ten fastest
growing economies of the last decade are in Africa.)
Nigeria and South Africa, the continent`s two
largest economies, and the leading economies in the 21-member African Group at
the IMF, which also includes countries like Angola, Cote D’Ivoire and Zambia, will see their respective quota
shares drop as a result of the recently approved reforms. Nigeria – Africa`s
biggest economy by GDP size – will see its quota decrease from 0.735% prior to
the reforms, to 0.515% after the adjustments. South Africa will also see its
quota decline from 0.784% to 0.411% after the reforms. A country`s quota
determines that country’s financial and organizational relationship with the
IMF, including, access to financing, voting power and subscriptions to the
Fund. In fact, only Botswana, Angola and Ethiopia will see their respective
quota shares increase following the reforms recently adopted. Collectively, the
21-member African grouping`s quota will fall to only 2.47%.
Though the Bretton Woods institution has been
pushing to reform its obsolete post World War II structure, Africa has widely
been seen as always holding the short end of the stick in its relationship with
the IMF. From the much loathed Structural Adjustment Programs to other flawed
developmental models the IMF has prescribed for Africa, the Fund has largely
been seen as out of sync with the needs of the African continent. However, the
move to have merit based, elected Executive Directors, ending the
category of appointed Executive Directors (currently the members with the five
largest quotas appoint an Executive Director) is a welcome development and will
enable sub-Saharan Africa – whose 45 member countries represent a quarter of
the IMF`s membership to push for a 3rd chair for the region. Currently,
sub-Saharan Africa is only represented by 2 chairs at the IMF.
Alternatives from the East?
But it is not just Africa that has felt the
pinch of disproportionate representation and lending systems at the IMF. Other
developing nations like China and India have not been done justice by the
reforms too, suffering at the expense of advanced European countries that have
benefitted disproportionately from the IMF lending practices. Considering,
China`s share in world output production, its voting rights are still
proportionally lower, effectively muting its say within the IMF relative to its
peers. This has seen Beijing also advancing the cause for the Asian
Infrastructure Investment Bank and more recently, the Brics Development Bank
together with Russia, India and South Africa as alternatives to the IMF.
The
reality is that most emerging countries, particularly those in Africa require
sizeable amounts of development financing to plug their infrastructure deficits
among other funding requirements. However, this puts the IMF in a conflicted
position as this runs counter to the institution`s original mandate as a
lender-of-last-resort, a role it has played in countries such as Greece in the
past. And with this mismatch between the needs of most African states and the
IMF itself, other international finance institutions might very well provide
relief for Africa and meet its funding needs. Asia, is growing more influential
by the day, driven by China`s rise, and Africa could ‘look-east’ for the
funding that it needs.
In spite of the
recent reforms, a requirement for the U.S. representative at
the IMF to ask permission at home before voting to approve any large-scale
funding program still exists and this signifies how much the IMF still has to
do to make itself more appealing and relevant to developing countries. Much
more still needs to be done, and for the most part, it is still business as
usual for African countries at the IMF.
Comments
Post a Comment