The 188 members of the International Monetary Fund over the weekend gave the U.S. Congress until the end of the year to pass reforms giving large emerging countries like Russia and China a greater say in the Bretton Woods Institution, after which the global financial body may make plans to reform the IMF without waiting for Washington.
A communique from the IMF’s finance committee urged Congress to use the coming months to enact the reforms, which would also double the IMF’s permanent lending authority. Top IMF officials continued to say they expect the IMF reform legislation to pass this year because of growing support in Congress for modernizing the institution to reflect the evolving world economic pecking order.
Nearly all the IMF’s other members have approved the reform legislation. But the U.S. is the IMF’s largest voting member and has blocked it from taking effect so far. The communique made clear that the IMF will not tolerate a delay of the reforms, first negotiated in 2010, for much longer.
“If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps and we will schedule a discussion of these options,” said the communique, which was issued after the IMF’s annual meeting in Washington concluded over the weekend. “We are committed to maintaining a strong and adequately resourced IMF.”
Some prominent international experts and IMF sympathizers are urging the Fund to go on without the U.S., including C. Fred Bergsten and Edwin M. Truman of the D.C.-based Peterson Institute on International Economic. They say there are various ways the IMF can get around the U.S.’s veto-wielding power over most major activities and decisions which require a supermajority vote of 85 percent. Although the largest single shareholder, the U.S. holds only a 17 percent voting share.
IMF Managing Director Christine Lagarde said last week the IMF is considering a “Plan B” for proceeding without the U.S., although she still hopes the U.S. Congress will act in time.
“It is entirely possible that the United States is going to ratify the 2010 reforms in the course of the year,” said Tharman Shanmugaratnam, Deputy Prime Minister of Singapore, noting that he sees a consensus building in Congress for “a strong IMF in the face of what are very obvious challenges in the global economy and to the whole global order.”
The White House and most Democrats in Congress support the IMF reforms, but the bill has divided Republicans on Capitol Hill, where some conservatives have balked at giving the IMF more funding and power. GOP leaders want major concessions from the White House in exchange for approving the reforms.
Mr. Shanmugaratnam warned that U.S. failure to ratify the reforms could undermine the IMF and the whole system of economic governance set up by the U.S. and its allies after World War II. China and some other big emerging countries have explored setting up a fund that would compete with the IMF to provide aid for developing countries during economic emergencies.
“If for some reason … the 2010 reforms are not completed, then we are more likely over time to see disruptive change,” Mr. Shanmugaratnam said. “We are more likely over time to see a weakening of multilateralism, the emergence of regionalism, bilateralism and other ways of dealing with global problems, and that will not be a better world for all of us, for the U.S., for members of the IMF. It is really a world that will be less safe.”