A new issue brief from the Center for Economic and Policy Research (CEPR) shows that despite recent changes in voting shares, the U.S. and Europe continue to maintain control of decisions at the International Monetary Fund (IMF).
The brief, “Voting Share Reform at the IMF: Will it Make a Difference?” examines reforms to IMF governance enacted earlier this year and finds that with 16.73 percent of votes, the US dwarfs all other member countries’ voting shares, both before and after the latest changes, and that outside of Brazil, Russia, India and China, voting shares for the rest of the developing world have actually decreased by 3 percentage points.
“The shift of 2.35 percentage points to China is far too small to make any significant difference in how the organization is run,” CEPR Co-Director, and co-author of the brief, Mark Weisbrot said. “Also, the U.S. importantly still has veto power over an array of major decisions.
“The IMF will continue to be dominated by the finance ministries of the rich countries, with U.S. Treasury at the top, and the governments of the vast majority of the world’s people will have very little say.”
The paper notes that this power imbalance can lead to damaging policies implemented in developing countries. For example, a review of 41 countries with IMF agreements during the world recession of 2009 found that 31 of the agreements contained pro-cyclical fiscal, monetary — or both — policy conditionalities [i.e., policies that could be expected to slow an economy that was already weakening or in recession].
The issue brief notes: “Treasury is the main power for policy decisions affecting low- and middle-income borrowing countries […] The executive board does not generally vote on these decisions, but rather reaches agreement by consensus.”
Meanwhile, “OECD countries retain an overwhelming majority of the voting share” — with over 63 percent — “within the IMF even after recent reforms.” These “are almost all high-income countries, and the few middle-income countries there (e.g., Mexico, Poland) can be expected to vote with the US.” This gives rich countries a steady and “reliable” majority when it comes to almost all decisions at the Fund. The voting shares allotted to the U.S. and other OECD countries are also disproportionate relative to the size of these economies.
The OECD countries have 63.09 percent of votes at the IMF, but represent only 45.6 percent of the global economy (on a purchasing power parity —PPP — basis). China’s 18.6 percent of the world economy (on a PPP basis) is more than the U.S., and China has more than four times the population of the US, but the US has more than 2.6 times China’s voting share at the Fund.
“The changes in voting share at the IMF have been very small, doing almost nothing to alter the balance of power in one of the world’s most important institutions,” said Weisbrot. “Even in terms of representing the world’s biggest economies, IMF governance structure is vastly outdated and ensures that the U.S. and Europe will continue to control the Fund.”