IMF Reforms

Sources: IMF bolsters clout of emerging nations; IMF reform gets big support, 23 nations opposed; IMF/WB meetings wrap up with member nations supporting reform programme

This week, the 184 member countries of the International Monetary Fund (the “IMF” or the “Fund”) voted to increase the voting power of China, Mexico, South Korea, and Turkey. These countries are considered “emerging countries” in the eyes of the IMF, and it wanted to increase the countries’ voting power in order to match the “growing clout” the nations have in the world economy.

Although most of the IMF member states voted in favor of this reform, 23 countries voted against it. Most of the dissenting countries reside in the Middle East and Latin America. These countries voted against the reform because they did not believe the reform sufficiently reflected the shift in the world economy away from the richer nations that founded the Fund in 1945. Currently, the Group of Seven (“G-7”) industrialized nations— the United States, Japan, Germany, Britain, France, Italy and Canada—hold 45% of the Fund’s membership, which in large part determines voting power.

A second stage of this reform is expected to take place in 2008. During this stage, the IMF will make broader adjustments for these emerging countries and the poorer IMF members. IMF Managing Director Rodrigo Rato recognizes that the next stage will pose challenges—richer nations will worry they will lose power, while poorer nations will be fighting for more power. Rato says that further changes are needed, however, so he will reach out to all members to ensure a consensus.

Additionally, the World Bank is looking to shift its structure to adhere to shifts in the world economy. World Bank’s President Paul Wolfowitz promised to give members a larger voice in the World Bank in order “to boost credibility and effectiveness.” Like the IMF, the World Bank’s governance is focused in the United States and in Europe.

Questions:
1. Will the countries voting against the IMF reform be appeased in 2008, when the IMF implements its second stage of the reform by making broader adjustments in favor of the emerging countries and the poorer IMF members?

2. How “broad” will the second phase of the reform need to be in order to sufficiently disperse the power of the IMF to show the shift in the world economy?

3. How will members of the World Bank react to such a change in its governance?