(May 04, New Delhi, Sri Lanka Guardian) Once upon a time in the not-too-distant past, the International Monetary Fund — the institution set up in Bretton Woods in 1946 ostensibly to foster global economic stability and help countries facing financial crises — used to be feared in the developing world. Economists and analysts of the IMF would "dictate" policies that would be unpalatable to those leading governments of Third World countries.
Those days have gone, unlamented. The IMF is today a pale shadow of its once-venerable self as it desperately seeks to remain relevant by belatedly throwing a few crumbs at emerging economies and developing countries. On April 28, the IMF approved an increase in the voting rights of all developing countries put together from 31.17 per cent to 34.49 per cent, much of it by increasing the voting rights of emerging economies from 23.88 per cent to 25.64 per cent.
Consequently, the share of the affluent countries in the aggregate voting rights of the IMF came down from 60.57 per cent to 57.93 per cent. It was a baby step but a move forward nonetheless for a multilateral financial institution — with 184 countries as its members — that had staunchly resisted change for over six decades.
The proposal to increase the voting rights of developing countries was, interestingly, opposed by only two major countries — Russia and Saudi Arabia — whose share of voting rights came down. The share of the countries that comprised the erstwhile Soviet Union fell from 7.09 per cent to 6.82 per cent. But the opposition to the move was brushed aside as close to 93 per cent of the vote was in favour of the proposal — the minimum requirement of approval being 85 per cent.
In September 2006, the Fund had approved an "ad hoc" increase in the voting shares of four countries: China, South Korea, Mexico and Turkey. At that time, the finance ministers had stated: "We reiterate that we support the increase in quota for the four countries (China, South Korea, Mexico and Turkey) who are the present beneficiaries of the ad hoc increase. However, the present quota calculation formula is opaque and flawed. We believe that fundamental reforms are possible only if the contours of a final outcome are defined a priori followed by genuine consultations amongst nations as equal partners. The picture that emerges at present points to a second stage that is by no means guaranteed to happen or, even if it happens, may not advance the Fund’s legitimacy."
The statement was of the view that a "disturbing picture that emerges is that some developing countries will be given increases by reducing the shares of some other equally deserving countries." The four finance ministers were categorical that this position was "unacceptable" and "further erodes the credibility and legitimacy of the IMF." They urged the Fund management to "keep the current process in abeyance" and make a "genuine attempt... to work out a simple and transparent formula that is truly reflective of the economic standing of countries while also protecting the position of low-income countries." The increase in the combined voting quotas of China, South Korea, Mexico and Turkey by a niggardly 1.8 per cent in 2006 had been preceded by two years of negotiations. Despite the changes that have recently taken place, the big picture has not altered substantially.
Financial assistance by the Fund used to be linked to policy conditions — the most controversial of which were the structural adjustment programmes — that were insisted on to rescue countries in acute financial distress. These conditions entailed a lowering of import barriers and the initiation of "neo-liberal" market-friendly measures that often wreaked havoc with the economies of poor countries. Especially after the Asian financial crisis of the late-1990s, developing countries had become rather wary of blindly following the Fund’s policy prescriptions — often called the "Washington consensus."
What is far more significant is the simple fact that the world in general (and developing countries in particular) does not need the IMF any more. Many emerging economies, notably China and India, have accumulated huge reserves of foreign exchange to ensure that they do not have to knock on the doors of the Fund. A most stark manifestation of the changed global reality is that the IMF is no longer a net lender of funds; it is, in fact, a net recipient.
In 2003, the IMF had loaned more than $100 billion to various countries to "assist" them with their financial constraints, including problems they were facing in managing their external balance of payments. This figure has shrunk to less than $20 billion a year. The IMF is today a net receiver of funds with an inflow in excess of $20 billion in the form of repayments of past loans, much of it from developing countries. What a fall!
( Paranjoy Guha Thakurta is an educator and journalist based in New Delhi.)
- Sri Lanka Guardian
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