IMF: Significant Governance Reforms Give Disenfranchised Nations Greater Say

Five years ago, a number of global powers struck a deal to overhaul the way the International Monetary Fund (IMF) conducts business. This week the IMF officially approved those governance overhauls and put the agreement into action, giving emerging economies more of a say in its operations. The agreement has been dubbed the “quota reforms.”

Five years ago, a number of global powers struck a deal to overhaul the way the International Monetary Fund (IMF) conducts business. This week the IMF officially approved those governance overhauls and put the agreement into action, giving emerging economies more of a say in its operations. The agreement has been dubbed the “quota reforms.”

They helped the IMF regain some of its credibility by allowing emerging markets a greater say, reflecting the growth in economic importance these nations experienced over the last few years. This boost in say also equates to a bigger stake in the IMF and an injection of critically needed cash into its funds.

According to IMF Chief Christine Lagarde, “These reforms will ensure that the fund is able to better meet and represent the needs of its members in a rapidly changing global environment.” Prior to the reforms, the IMF’s leadership worried that nations like China, India, and Brazil were growing increasingly disenfranchised, undermining the organization’s mission of global cooperation and economic growth.

The so-called “quota reforms” give China, Brazil, and several other developing nations a greater say and more power over the affairs of the fund. Of course, that shift in authority comes largely at the expense of the entrenched European nations that have long held sway over many of the organization’s policies.

Although the current restructuring represents a huge step for the IMF and the futures of the affected emerging market nations, the process is far from over. These nations gained a mere 2.6 percent increase in voting interests, as opposed to the 20 plus percent gain in economic heft they have experienced over the past 15 years. As a result, analysts believe more reforms will be necessary in the not too distant future, if the organization is to remain relevant.

Negotiations for the next round of quota overhauls have already begun, according to the Wall Street Journal. Before a number of key emerging markets experienced the recent shakeup experienced, those negotiations would almost surely have meant additional gains for these countries. However, recent turmoil in the economies of countries like Russia, China, and Brazil may forestall those efforts, as these large emerging economies are suddenly contributing far less to the global GDP than they were at their peak in 2013. As a result, while negotiations may continue for additional quota changes, actual approval for those changes may take far longer.