This House would end western states' control over the International Monetary Fund

The decisions taken by the IMF have a deep impact on the entire global financial system and on developing countries in particular, whose economies are especially sensitive to global changes. Yet, the Western, developed countries have the greatest sway in the decision-making process, with developing countries having little influence over the process. It creates an unjust financial world order, where rich and powerful countries call the shots and smaller, poorer ones bear the consequences[1].

[1]Foot, Rosemary; Mcfarlane Neil; Mastadundo Michael. US Hegemony in International Organizations. Oxford Publishing Online, November 2003. http://www.oxfordscholarship.com/oso/public/content/politicalscience/9780199261437/toc.html

The primary function of the IMF has now become that of a lender of last resort[1]. It keeps governments that are on the cusps of a default, solvent. Membership in the IMF is optional, as is borrowing from the fund. Countries only have to do what the IMF tells them when they take its money. Western countries get to have more sway because they bring in the greatest financial contributions to the Fund. It’s not unfair, therefore, for them to be allowed to place conditions on how their money will be used by those who choose to borrow it.

[1]Bihide Amar; Phelps Edmund. “More Harm than Good”. The Daily Beast. July 11, 2011. http://www.thedailybeast.com/newsweek/2011/07/10/amar-bhide-and-edmund-phelps-on-what-s-wrong-with-the-imf.html

Claims that power within the IMF is distributed according to the reality of the members’ weight in the global financial system are inaccurate. The IMF reflects the financial system as it was 50 years ago and has done little to acknowledge the growth of countries like Brazil, Russia, India, and China (BRICs), which have far fewer votes than their economic heft merits, while Western countries like Belgium are actually overrepresented[1]. Significant reforms to the voting quotas need to be implemented in order to create an IMF that is true to the reality of the world financial system.

[1]-- “Wanted: a French Revolution”. The Economist. June 30, 2011. http://www.economist.com/node/18897575

One needs to differentiate between mature, developed, but indebted economies like the US, the UK, and developing, cash-rich economies like the BRICs. Their share of the world economy might be increasing, but they would be better served investing their money in infrastructure and development, not in the IMF. Only then they might be on par with the developed nations and comparing quotas might become appropriate.

Western dominance leads to economic policies and loan conditions rooted in neoliberal economic principles, like austerity measures, which overemphasize cutting public spending. These often actually end up badly hurting developing economies, increasing inequalities and poverty (Malawi is a prominent example)[1]. Argentina’s economic collapse attests to that[2].

[1]Hari, Johann. “It’s not just Dominique Strauss-Kahn. The IMF itself should be on trial”. The Independent. June 3, 2011. http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-its-not-just-dominique-strausskahn-the-imf-itself-should-be-on-trial-2292270.html

[2]-- “Economic debacle in Argentina: The IMF strikes again”. http://www.twnside.org.sg/title/twr137b.htm

That is an argument for reforming the economic foundations and philosophy of the IMF, not necessarily its governance. One cannot simply conflate the leadership of Western nations with neoliberal policies. Keynesianism is also a western economic doctrine. Maybe the IMF should be encouraged to adopt it in some cases.

Since Western countries do not suffer from food shortages, they do not understand how vital food and access to healthcare is for survival in the developing world. The IMF treats food and healthcare in its policies just like any other commodity on the market, sometimes with disastrous humanitarian consequences[1].

[1]Oxfam. “Death on the Doorstep of the Summit”. Oxfam Briefing Paper. 2002 https://www.oxfam.org.uk/resources/policy/debt_aid/downloads/bp29_death.pdf

You don’t need to experience food shortages to understand the importance of food. The IMF position, however, is that financial stability is a precursor for long-term growth and prosperity. Therefore, in the short term, balancing budgets might take precedence over any other legitimate concerns countries might have, like subsidising farming to maintain low food prices.

The decisions taken by the IMF have a deep impact on the entire global financial system and on developing countries in particular, whose economies are especially sensitive to global changes. Yet, the Western, developed countries have the greatest sway in the decision-making process, with developing countries having little influence over the process. It creates an unjust financial world order, where rich and powerful countries call the shots and smaller, poorer ones bear the consequences[1].

[1]Foot, Rosemary; Mcfarlane Neil; Mastadundo Michael. US Hegemony in International Organizations. Oxford Publishing Online, November 2003. http://www.oxfordscholarship.com/oso/public/content/politicalscience/9780199261437/toc.html

The primary function of the IMF has now become that of a lender of last resort[1]. It keeps governments that are on the cusps of a default, solvent. Membership in the IMF is optional, as is borrowing from the fund. Countries only have to do what the IMF tells them when they take its money. Western countries get to have more sway because they bring in the greatest financial contributions to the Fund. It’s not unfair, therefore, for them to be allowed to place conditions on how their money will be used by those who choose to borrow it.

[1]Bihide Amar; Phelps Edmund. “More Harm than Good”. The Daily Beast. July 11, 2011. http://www.thedailybeast.com/newsweek/2011/07/10/amar-bhide-and-edmund-phelps-on-what-s-wrong-with-the-imf.html

Claims that power within the IMF is distributed according to the reality of the members’ weight in the global financial system are inaccurate. The IMF reflects the financial system as it was 50 years ago and has done little to acknowledge the growth of countries like Brazil, Russia, India, and China (BRICs), which have far fewer votes than their economic heft merits, while Western countries like Belgium are actually overrepresented[1]. Significant reforms to the voting quotas need to be implemented in order to create an IMF that is true to the reality of the world financial system.

[1]-- “Wanted: a French Revolution”. The Economist. June 30, 2011. http://www.economist.com/node/18897575

One needs to differentiate between mature, developed, but indebted economies like the US, the UK, and developing, cash-rich economies like the BRICs. Their share of the world economy might be increasing, but they would be better served investing their money in infrastructure and development, not in the IMF. Only then they might be on par with the developed nations and comparing quotas might become appropriate.

Western dominance leads to economic policies and loan conditions rooted in neoliberal economic principles, like austerity measures, which overemphasize cutting public spending. These often actually end up badly hurting developing economies, increasing inequalities and poverty (Malawi is a prominent example)[1]. Argentina’s economic collapse attests to that[2].

[1]Hari, Johann. “It’s not just Dominique Strauss-Kahn. The IMF itself should be on trial”. The Independent. June 3, 2011. http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-its-not-just-dominique-strausskahn-the-imf-itself-should-be-on-trial-2292270.html

[2]-- “Economic debacle in Argentina: The IMF strikes again”. http://www.twnside.org.sg/title/twr137b.htm

That is an argument for reforming the economic foundations and philosophy of the IMF, not necessarily its governance. One cannot simply conflate the leadership of Western nations with neoliberal policies. Keynesianism is also a western economic doctrine. Maybe the IMF should be encouraged to adopt it in some cases.

Since Western countries do not suffer from food shortages, they do not understand how vital food and access to healthcare is for survival in the developing world. The IMF treats food and healthcare in its policies just like any other commodity on the market, sometimes with disastrous humanitarian consequences[1].

[1]Oxfam. “Death on the Doorstep of the Summit”. Oxfam Briefing Paper. 2002 https://www.oxfam.org.uk/resources/policy/debt_aid/downloads/bp29_death.pdf

You don’t need to experience food shortages to understand the importance of food. The IMF position, however, is that financial stability is a precursor for long-term growth and prosperity. Therefore, in the short term, balancing budgets might take precedence over any other legitimate concerns countries might have, like subsidising farming to maintain low food prices.

For its entire existence, the managing director of the IMF has always been European. This has created considerable discontent within the developing world, with developing countries feeling disenfranchised and, therefore, less likely to trust and cooperate with the Fund[1].

[1]Musoko, Chipo. “Why IMF boss will not come from the Continent”. All Africa. May 23, 2011. http://allafrica.com/stories/201105240835.html

As vocal as developing countries have been about the need for a change in leadership at the IMF, they have often failed to come up with viable alternatives to European candidates and recently, when given the opportunity, they failed to rally around Christine Lagarde’s (the new MD) only serious competitor: Mexico’s Agustín Carstens3.

Capitalism as guiding principle: At its core, the IMF is a capitalist, financial institution, not an exercise in proportional representation and democracy, and it has to function on that premise.  Drastic changes in the quota systems that would see the West ceding control of the institution, would not be based on the reality of the financial system, but on a political desire to make the institution more representative. Such a move would hurt its efficiency.

Unbridled capitalism is not a viable response. A balance has to be struck between economic interests and political imperatives. The IMF is also a political institution, not a private bank. Its money comes from countries, and therefore the IMF should be accountable to its member states that pay for its very existence. That means a more representative balance of power within the governance of the institution.  

Western countries are the biggest contributors to the IMF. They bring in the most money and, until recently, have rarely required loans from the institution themselves. In any business, the biggest shareholders get to have the most say in the decision-making process. The IMF should not be different.

Member countries can not unilaterally increase their quotas8. So even if a country, like the BRICs became rich enough to afford buying a bigger share, it would be in the interest of Western nations to block such a move to retain the power under the status quo.

Western countries are still, rightfully, dominant players. But they hold disproportionate sway over the Fund. Important decisions within the IMF require an 85% supermajority of the total voting quota. The US alone holds 17%, while EU members hold 32%[1]. Effectively, the US is the only country in the world with veto rights at the IMF. Even if all the other countries were in agreement over a certain proposal, the US could unilaterally block it. That is a clear example of just how dominated the IMF is by the West.

[1]Wikipedia. “IMF Article. Memers’ quotas and voting powers”. http://en.wikipedia.org/wiki/International_Monetary_Fund#Members.27_quotas_and_voting_power.2C_and_board_of_governorshttp://en.wikipedia.org/wiki/International_Monetary_Fund#Members.27_quotas_and_voting_power.2C_and_board_of_governors

To paint the IMF as western dominated and unresponsive to shifts in the global financial order is inaccurate. The IMF is gradually accommodating the growing stance of emerging economies like China through reforms to its quota system[1]. Also, among the countries with the 10 biggest quotas are Japan (no 2), China, Saudi Arabia and Russia8.  The reality is that Western economies still represent the biggest players in the world financial system and any change in their leadership of the IMF should come gradually, with the potential change in status within the world economy. There is no reason why they should abruptly relinquish leadership of the Fund.

[1]Arnott, Sarah. “Emerging Economies Battle for More Voting Rights at the IMF”. The Independent. September 28, 2009. http://www.independent.co.uk/news/business/news/emerging-economies-battle-for-more-voting-rights-at-imf-1794358.html

Precisely because Europe is now the IMF’s biggest client, its MD should not come from Europe. Questions about the independence a European in such a position are already being raised, with some pointing to the fact that the fund has been much more generous with the European PIGS than with any of its previous clients. A non-European MD would maintain the Fund’s credibility and integrity[1].

[1]-- “Time For a Change: While a euro-zone finance minister, even a talented one, should not lead the IMF”. The Economist. May 26, 2011. http://www.economist.com/node/18744017