On Saturday afternoon a grinning Gordon Brown declared that the IMFC had agreed steps to make 2006 a year of reform. Rodrigo de Rato was similarly upbeat as he hailed progress on the road to an IMF for the modern world.
The IMF’s 184 members asked de Rato to prepare the ground for addressing the thorny problem of voting rights in September. At the same time he will announce plans for surveillance of multilateral consultations over the fabled imbalances that threaten the global economy.
Another interpretation of the results of the weekend’s discussion is that the committee has agreed to tackle the easier questions while punting the difficult issues into the long grass. The managing director’s proposal to grant a one-off quota increase before examining deeper injustices was disappointing to some and will do little to move forward the debate on fundamental voting reform.
After all, the case for more influence for China, Mexico, Turkey and some south east Asia countries is about updating the old system rather than implementing a new one. And it’s a very easy case to make. Brown’s vaunting of unanimous support for the communique’s declaration - “we underscore the role an ad hoc increase in quotas would play” - failed to mask the disillusionment in some quarters a lack of ambition.
The G24 insisted that the ad hoc increase could not be an answer and voiced a preference for a comprehensive package to broach a new quota formula, taking account of purchasing power parity. The group also demanded an increase in basic votes. Africa’s representatives were even more vocal in their opposition to the two-step process, which will give them nothing until the second stage.
The sub-Saharan region’s 45 countries, all IMF members and mostly actively involved in the lender’s programmes, have just two seats at the institution. They also complain about an under-representation on the IMF’s staff but are resigned about the possibility for shifting the institution’s focus more towards its debtors.
“It’s a long term objective as opposed to a medium or short term possibility,” Jean-Claude Massangu, governor of the central bank of the DRC, told Emerging Markets.
An indication of where the obstacles lie came from the euro-group press conference, where Luxembourg prime minister Jean-Claude Junker, mouth-piece of the 12 nations, brushed off a question about why Europe seems to be in the rearguard of reform. Euro countries want to play, not only pay, in the IMF, Junker said.
And even the ad hoc increase comes with conditions. US Treasury secretary John Snow insists that his backing for the change is dependent upon the introduction of a currency-policy policing aspect to the IMF’s work.
How this will operate is unclear. De Rato promised a transparent framework under which countries can be called to account for actions which may have repercussions beyond their borders. The market implications of an IMF examination of currency valuations may well deter the institutions members from allowing too detailed an examination here, however.
The IMF’s road to reform was always going to be a bumpy one and every step in the right direction should be applauded. But talk of unanimity and progress should not mask the fact that little evidence has emerged that the fundamental divides within the group’s membership are narrowing. The Singapore meeting will be a crunch point and the danger is that global superpowers quibble the discussion into a damp squib as they managed with the Doha trade talks in Hong Kong.