Former South African finance minister Trevor Manuel has denounced the IMF’s 24-member executive board for obstructing reform, and suggested it could be broken up.
Manuel, chair of the Committee of Eminent Persons on IMF Governance Reform, told Emerging Markets in an interview: “There is a fundamental flaw in the approach to institutional reform – that people [on the board] don’t give up what they have. “They will resist any idea that they are so unimportant that their task can be dispensed with.”
In the argument now raging about the board being restructured, the US has called for the number of directors to be cut to 20, while the UK and France are resisting pressure to give up their seats.
Manuel’s committee has recommended lowering the proportion of votes needed to pass key issues from 85% to 70% – which would get rid of the effective veto of the US, which has a 17% voting share.
Manuel also repeated calls for greater representation by developing countries. “You have a maldistribution of chairs. You want constituency-based systems, but need to reorder the chairs. ... That’s the impasse.”
Manuel, however, played down the risk of countries breaking out to find alternative sources of funding. “If you were talking in times of abundant capital, it may have been an issue, but you don’t have such an abundance now,” he said.
China, with its large currency reserves, could offer an alternative, but was unlikely to do so, he said. China, the largest borrower from the World Bank, is “a smart player. They wouldn’t want to isolate themselves.
“But we have to battle at finding a more appropriate system of governance and representation than you have at the moment.”
In Istanbul, the G24 group of developing nations has issued a communique voicing its support for “correcting the unfair distribution of quotas and voting power”, by a shift of 7% in aggregate voting shares to developing countries.
Amar Bhattacharya, director of the G24 secretariat, told a press briefing it should be “clear” that the shift was from “developed to developing countries” – reflecting the group’s rejection of the notion, favoured by European Union, that the shift should be seen as one from over-represented to under-represented countries.
The group also urged that the next quota review, to be completed by January 2011, should “at least double the size of overall quotas”, meaning a doubling of the resources available to the IMF.
Adib Mayaleh, G24 chairman and governor of the Syrian Central Bank, told the briefing that developing countries were “paying a very high price in a substantial slowdown of growth” and that, given a continuing threat of unemployment, should “continue with counter-cyclical measures until a strong recovery has been achieved”.
The communique argued that the extra $750 billion made available to the IMF over the past year should be seen as “a bridge to a permanent expansion in the IMF’s resources through a general quota increase”.
As with the IMF, the group demanded a redressing a “democratic deficit” in the World Bank, advocating a “shift of 6% in the voting power from developed to developing and transition countries”. This should be done “without involuntary dilution of the shares of individual developing countries”.