US Treasury Welcomes IMF Reform Package

by Glen Shapiro, LawAndTax-News.com, New York

08 September 2006

Speaking with regard to the International Monetary Fund's recently unveiled reform program, US Treasury Under Secretary for International Affairs, Timothy D. Adams announced that:

"I am pleased that the Fund's Executive Board has put on the table a reform package that will take into account the rapid growth in emerging markets and the evolution of economies around the world. All agree that it is also critical to ensure an appropriate voice for the poorest countries."

"However, there is much important work left to be done after Singapore and it is crucial that the Fund's membership approach this endeavor in the spirit of re-making the Fund to look like the face of today's global economy."

He went on to add that:

"The IMF management and membership now need to demonstrate that the institution will move swiftly to fundamental reform in step two. Significantly higher GDP share in a new quota formula and updated, strengthened, and rigorously applied guidelines for exchange rate surveillance are necessary components if the IMF is to remain the world's leading multilateral institution for macroeconomic and financial policy."

Speaking on September 5, ahead of the meetings in Singapore, IMF managing director, Rodrigo de Rato outlined the progress which has been made in implementing two particular aspects of the Medium-Term Strategy, relating to Fund governance and surveillance.

He announced that:

"The Medium-Term Strategy is motivated by the central insight that the world is changing fast, and that the Fund needs to adapt to reflect the changes we are seeing in the wider world. New economic powers are rising, especially among the emerging market economies. Financial globalization creates tremendous economic opportunities and commensurately increased risks. How then should the Fund adapt to these changes?"

"I believe that the changed distribution of economic weight in the world demands that we reform our governance structure. The distribution of quotas, which largely determine voting power in the Fund and also influence the amount that members can borrow from the Fund, has changed only gradually over time, and has not kept up with changes in the relative position of countries in the global economy. I see a clear need for a rebalancing of quotas to reflect changed economic realities, especially the increased economic weight of major emerging markets."

"I also see a need to protect the voice and representation of low-income countries. Their voting power has been eroded over time, in part because other countries' relative importance in the global economy has increased, and in part because "basic votes" — an equal allocation of votes based on the principle of equality of states that was made when the Fund was founded — have become relatively less significant with each new increase in quotas. This gives rise to concerns about the adequacy of voice and representation for a number of countries that continue to borrow from the Fund but that have only a limited share in Fund voting."

He continued:

"It is a challenging process to revise the structure of Fund quotas. There are many interests at stake and almost as many principles that can be invoked to defend those interests. I am thankful for the attitude of many, many countries and governments. They have taken a broad view of the institution's interests, and not just looked at their own interests, legitimate as they are. As a result, I can report that the members of our Executive Board have risen to the challenge and have agreed on a package of measures that they will recommend to the Fund's Board of Governors in Singapore."

"One element of the package will be implemented very quickly. This is an increase in quotas for four countries that are clearly underrepresented — China, Korea, Mexico, and Turkey. This increase would be designed in part to rectify the most extreme distortions in representation, but its greater significance is as an initial action in a broader process of reform."

"This would take place over the next two years, with discussions beginning very soon on a new quota formula, designed to capture more accurately members' positions in the global economy, so that — if possible by the 2007 Annual Meetings, and at the latest by the 2008 Annual Meetings — the Board would agree on a new formula, and recommend further ad hoc increases in quotas for a broader range of members based on this. There is also agreement that we should ensure that quota shares continue to evolve in line with changes in members' positions in the global economy, while continuing to ensure that the Fund has enough liquidity to achieve its purposes."

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