Stalled talks on shifting IMF voting power to emerging economies are likely to culminate in a deal following US elections in November, the chairman of the IMF’s governing board has said.
IMFC chairman Tharman Shanmugaratnam told Emerging Markets in an interview that although the lack of a US vote had meant a failure to deliver much anticipated governance reform in Tokyo this week as planned, he was hopeful that Washington would nevertheless “deliver on commitments” in the coming weeks.
“I don’t think the US is going to drag its feet on this. I have some trust in my American colleagues that they will want to do the responsible thing,” Tharman, who is also Singapore’s finance minister, said. “The US after all was one of the leading activists behind the reforms.”
His comments came as IMF managing director Christine Lagarde reiterated the importance of ratifying the governance reforms agreed two years ago, in order to grant developing countries more seats on the managing board.
“We are almost there – almost because of the three thresholds we had to hit. We are short on one. We are working extremely hard on that third threshold. It is important that we actually deliver on that commitment that was made back in 2010,” she said.
Tharman said that IMF governors were now “moving towards” the next phase of quota reforms which would be complete by early 2014.
This would include devising a new formula to determine voting shares. Any change that would give more weight to purchasing power GDP is likely to benefit large emerging economies, including China and Brazil.
“The world economy continues to evolve and we’ll see a non-trivial adjustment on quotas and voting power, even on existing formulas,” Tharman said. “We are reviewing the formula itself to see how it can be best fitted to the world we’re in and the world to come.
“We’ve got to have a quota formula that reflects the mandate and make-up of the Fund, not just geopolitics,” he said.
Asked whether there was a willingness among European shareholders to fulfil their promise to cut their representation on the 24-member board – a pledge Europe failed to keep in time for the IMF’s Tokyo meeting – Tharman said: “There are enough reasonable players at the table. They know that the world economy is evolving and that the Fund’s governance has to reflect that.”
But he added: “We are still not in a situation I would describe as ‘consensus’”.
Commenting on the pace of Fund reform, Oxfam policy expert Elizabeth Stuart said: “IMF governance reforms are moving far too slowly. Emerging markets have stuck to their part of the bargain by giving the IMF the firepower it asked for, yet they’re still being denied their rightful place at the table. This reform is too little, and it’s late.”
“The US needs to ratify this agreement as quickly as possible. Further delay is unacceptable.”
Tharman said the Fund must now “work on a permanent increase in capital which comes with the quota review rather than focus on further ad hoc increases in bilateral contributions.”
He denied that the IMF risked being held hostage to Europe’s crisis by virtue of its close involvement in attempting to resolve the single currency area’s woes.
“The IMF is very sharply aware of the need to preserve its objectivity. Its role in Europe is important and it has to do with providing surveillance and monitoring of programmes.”