Global Policy Forum

By Anil Netto

The 184 member nations of the International Monetary Fund (IMF) formally approved Monday, a proposal to raise slightly the voting shares of China and three other developing countries in the biggest reforms in the Fund's six-decade history -- but critics say the changes are cosmetic.

The IMF move, which received over 90 percent approval, appears to be part of the global financial institution's attempt to re-invent itself amidst strong civil society criticism and a looming IMF budgetary crisis.

Earlier in the day, a group of 13 accredited activists created a stir when they staged a protest against IMF loan conditionalities inside the Suntec Convention Centre, the venue of the annual meetings of the board of governors of the IMF and the World Bank on Sep19-20. With their hands bound and wearing T-shirts bearing the message "Cut the strings'', they held candles and chanted, "IMF, stop hurting the poor!'' in the small, designated protest area in the foyer. Placards bore messages like "Conditions damage democracy'' and ‘‘Conditions hurt the poor''. They said IMF conditions damage democracy, hurt the poorest people, delay justice and prolong poverty.

The International Monetary and Financial Committee (IMFC) of the IMF Board of Governors had stressed the importance of its ''quota and voice reforms'' in a communique after its meeting on Sunday. The first stage grants four countries -- China, South Korea, Mexico and Turkey -- a small increase in their voting power despite opposition from 23 developing nations who are concerned that their own inaudible voices will be further diluted.

A second stage would see further small adjustments in the voting share of other emerging economies and poorer nations by early 2008. The move, said the IMFC, would make significant progress in "realigning quota shares with members' relative positions in the world economy'' and "in enhancing the participation of low-income countries in the IMF". But critics say the four countries will get only an additional 1.8 percent in voting power and rich nations would still control the IMF.

Ministers from the G24, a group of developing nations, argue that reforms must include an early and substantial increase -- at least a tripling -- in basic votes (which reflect the equality of states) and a new quota formula that accurately reflects the relative size of developing countries in the world economy.

Activists say the minor tinkering masks the fact that the IMF and the Bank are both facing serious crises. The IMF, they say, faces a crisis of legitimacy in the aftermath of the East Asian financial crisis. Its policies were blamed for liberalising capital controls, making it easier for 'hot' money to flow into the region and just as quickly flee at the hint of bad news.

IMF rescue packages led to cuts in government spending, removal of crucial subsidies, and a slowdown in the crisis economies, hurting the poor. With the Russian financial collapse in 1998 and the economic disintegration of Argentina -- a poster boy for IMF polices -- in 2002, the crisis of legitimacy deepened.

This, in turn, contributed to an ongoing IMF budget crisis as borrower nations such as Thailand and Indonesia paid up their loans and ended their loan agreements or declared independence from the Fund. Other developing countries are shunning new IMF loans for fear of the neo-liberal conditions attached to them. The World Bank too faces a budgetary crisis following a sharp drop in income from borrowers' fees and from bank investments.

In response, the IMF has been battening down the hatches amidst tight security in Singapore. The global financial institution is now trying to reinvent itself as an organisation that can tackle global trade ''imbalances''. ''The focus of the IMF in future is not just crisis resolution, but also crisis prevention and the vehicle will be the multilateral surveillance mechanisms,'' said Gordon Brown, chairman of the IMFC, who is also Britain's Chancellor of the Exchequer, at a press conference on Sunday. Brown said the IMFC was united in expressing deep regret over the suspension of World Trade Organisation (WTO) negotiations, "but we went on to urge all nations and all members of the WTO to resist protectionist calls".

Following the IMFC meeting, Brown said he was more optimistic now of a resumption of the stalled Doha round of trade talks after the richest countries pledged to give four billion US dollars in aid to developing countries. But Peter Hardstaff, head of policy of the London-based World Development Movement (WDM), said, "It is not what countries say as the G7 or the IMF that matters, it is what they do at the WTO.''

The WDM researches into the root causes of poverty and aims to change policies that keep the developing world poor. He said Brown's bullish pronouncements on trade do not change the fact that the European Union and the U.S. are trying to ratchet market access out of developing countries that could undermine efforts to reduce poverty. ''Without a major shift in EU and U.S. trade policy, and without a radical change to the way negotiations are conducted, there is little point in resuscitating the Doha round,'' said Hardstaff.

But it is the meagre voting ''reforms'' that have left activists here fuming. Decisions at the IMF require an 85 percent majority but the U.S. still holds a 17 percent voting share, giving it an effective veto power. Noting the absence of any fundamental reforms, Stephen Mandel of the London-based New Economics Foundation (NEF) told IPS, ''It's like rearranging the deck chairs on the Titanic.''

The NEF describes itself as a 'think and do' tank focusing on people-centred economics. According to his calculations revealed to IPS, Africa, which has only two seats on the 24-seat IMF Executive Board of Governors, has a total of only 4.4 percent in voting power. One of these seats, representing a constituency of 24 African countries, has just 1.4 percent of total voting power.

In comparison, developed countries, making up only a fifth of the member nations and 15 percent of world population, have 60.4 percent of total voting power. Further, the poorer half of the over 180 IMF member nations have a combined voting power of just 4.2 percent of total voting power -- less than the share of France.

Voting power comprises two components: a weighted allowance of votes based on members' contributions or quotas and 250 ‘basic votes' for each country designed to reflect the equality of states. As quotas have increased 37-fold since 1944, the share of all basic votes has plunged to 2.1 percent of total voting power -- a meaningless level -- down from a high of 15.6 percent in 1958 and 11.3 percent in 1944, when the IMF was established.

What the IMF has put forward in governance reform is paltry, says Jeff Powell, coordinator of the Bretton Woods Project (BWP), a London-based watchdog group scrutinising the IMF and the Bank. ''So far there is no indication that the big players (have recognised that they) are over-represented and are willing to make the concessions needed to solve the crisis of legitimacy,'' he told IPS.

Powell said eight Britain-based NGOs including Christian Aid, Oxfam and CAFOD had instead endorsed a BWP proposal for a 'double-majority' voting system under which decisions would be made by both a majority based on voting weight as well as a straightforward majority in terms of number of member countries. Others, though, would prefer to see an end to the whole economically weighted voting system that favours the richer nations.

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