Recently, the International Monetary Fund announced “historic reforms” in its governance. In reality, changes have barely begun. The IMF does not look like the world it purports to represent.
During the global crisis of 2008/9, advanced economies could no longer contain the devastation. As a result, the G20, which includes both advanced and emerging economies, surpassed the old G7 club of Western powers.
In turn, Washington and Brussels pledged to accelerate governance reforms in international organizations, such as the International Monetary Fund (IMF). Last week, these reforms entered a new era, according to the organization.
“I commend our members for ratifying these truly historic reforms,” Christine Lagarde said. The French managing director of the IMF stated that the reforms would ensure that the institution is better able to meet its members’ needs in a rapidly changing global environment.
However, how does the IMF reflect the international community?
Asia’s fractional power
The IMF’s recent reforms will increase its quota resources (the capital of its member contributions), which will almost double to a total of US$659 billion and thus enhance the organization’s ability to respond to crises more effectively.
Supposedly, these reforms enhance the voice of the emerging and developing countries as more than 6 percent of quota shares will shift to emerging markets and developing countries. In turn, Brazil, China, India, and Russia will join the 10 largest members of the IMF, along with major advanced economies: the United States, Japan, and the core European countries: France, Germany, Italy, and the UK.
Nevertheless, these “historic reforms” will not challenge the bargaining power of the advanced economies. The US will continue to dominate 18% and other advanced economies 25% of the IMF quotas.
In contrast, the quotas of the BRICs countries - the large emerging economies of China, India, Brazil and Russia – amount to a combined 10%, which is less than a fourth of the combined share of the major advanced economies.
Regionally, the IMF reflects the dominance of advanced North America and Western Europe, at the expense of emerging Asia.
Asia’s miniscule voice
How representative are these shares? Well, measured by the gross domestic product (GDP), the share of the US in the world economy is 22% and that of other advanced economies about the same; that is, 44% of the total or about the same as their combined IMF quotas.
In contrast, the share of the emerging BRIC economies is over a fifth of the world economy. Yet, their current share of the IMF quotas is barely half of that measure.
Measured by population, the discrepancy is far greater. While the major advanced economies account for a tenth of the world population, the share of the large emerging economies amounts to 41 percent of the total.
In this view, the bargaining power of the emerging economies is only a fourth of their demographic share, whereas that of the advanced economies is four times larger than their demographic role in the world.
Regionally, Asia’s bargaining power in the IMF is a fraction of what it should be.
Despite pledges of reforms, major advanced nations, which account for one-tenth of the world population, dominate the IMF. Similar discrepancies prevail in the World Bank, the World Trade Organization and other international institutions, which remain dominated by American, European and Japanese interests, as reflected by their voting quotas, investment allocations and the nationalities of their leaders.
In the IMF’s topsy-turvy world, Indonesia, with its 260 million people, has a voice that is about half of that of Belgium, with its 11 million people. Similarly, Pakistan, with its 193 million people, has a voice that is half of that of Austria, with its 9 million people.
After more than seven decades of effective operations, the IMF is still not the international financial institution that it claims to be but a relic of former imperial powers and the victors of World War II in the post-colonial world.
Under the present conditions, the creation of the BRICS New Development Bank and the Asian Infrastructure Investment Bank cannot be seen as attempts to substitute current international institutions (which do not exist yet). Rather, see them as efforts to complement the existing advanced-economy organizations with emerging-economy institutions that together reflect better the real world community.
If the definition of democratic human rights is having a voice in the world community, we do not yet share a democratic world community or effective human rights – only a semblance of international democracy and a façade of human rights.