U.S. Congress Finally Approves IMF 2010 Quota & Governance Reforms

Economics, Premium POM

America is Stepping Back on Some Geopolitical and Socioeconomic Fronts

By JC Collins

At long last the US Congress has adopted supporting legislation to the International Monetary Fund’s 2010 Quota and Governance Reforms.  The last deadline given to the US by the G20 and the IMF was December 15th, which appears to have been met as Congress passed an omnibus spending bill Wednesday morning which included a provision to legally enact the reforms.

This milestone on the multilateral monetary transition further enforces the analysis presented here on POM and can be most realistically understood as movement on the US front to concede its unipolar geopolitical and socioeconomic positions.

Outside of increasing the quota amounts and voting rights of the emerging markets, specifically China, the reforms also include a doubling the capital base available to the IMF in the event increased emergency lending is required.

This enhanced lending will become important as some countries default on sovereign debts in the coming months and years.  The next stage to this transition will be sovereign debt restructuring, which the inclusion of the RMB in the SDR and the 2010 reforms serve a vital role.

From the official announcement of the International Monetary Fund’s Managing Director Christine Lagarde:

“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.

“A more representative, modern IMF will be even better equipped to meet the needs of all its 188 member countries in the 21st century.”

Background information and useful links:

The 2010 Quota and Governance Reforms were approved by the Board of Governors in December 2010 (see Press Release No. 10/477) and build on an earlier set of reforms that was approved by the Board of Governors in April 2008. These include quota increases for all member countries under the 14th General Review of Quotas and an amendment to the Articles of Agreement on the reform of the Executive Board, enabling an all-elected Executive Board for the first time. The reforms require the acceptance by the membership—with an 85 percent majority of the total voting power—which in many cases involved parliamentary approval. 

Main Outcomes of the 2010 Quota Reforms:

  • All 188 members’ quotas will increase as a result of the agreed bolstering of the Fund’s quota resources to about SDR 477 billion (about US$659.67 billion) from about SDR 238.5 billion (about US$329.83 billion).
  • More than 6 percent of quota shares will shift to dynamic emerging market and developing countries and also from over-represented to under-represented members.
  • Four emerging market countries (Brazil, China, India, and Russia) will be among the ten largest members of the IMF. Other top 10 members include the United States, Japan, and the four largest European countries (France, Germany, Italy, and the United Kingdom).
  • The quota shares and voting power of the IMF’s poorest member countries will be protected.
  • For the first time, the IMF’s Board will consist entirely of elected Executive Directors, ending the category of appointed Executive Directors (currently the members with the five largest quotas appoint an Executive Director).
  • There will be further scope for appointing a second Alternate Executive Director in multi-country constituencies with seven or more members to enhance the constituency’s representation in the Executive Board.
  • Advanced European countries have committed to reduce their combined Board representation by two chairs.
  • The doubling of quotas together with the shift in quota shares and the move to an all-elected Board mark a significant step forward in the process of IMF quota and governance reforms.

We recent moves by the US to request that Turkey remove its forces from Iraq, and stating that Assad could stay in power in Syria, is suggestive that America is beginning to accept the larger machinations of the multilateral monetary transition.

But there are still many pieces which need to be moved and acted upon.  The recent move by Japan to attempt a missile blockade of the East China Sea to thwart “Chinese maritime aggression”, just a day after the 2010 reforms were approved in Congress, is extremely telling that not all are in complete agreement.  The US and its core allies will only relinquish power and influence as a last resort.

As such, we can expect that this transition will still take time and that there may still be some economic volatility and geopolitical tension.

But this also means that the world is now one step further back from having a war over this monetary transition.  That’s a positive for everyone.  – JC