The Case for IMF Quota Reform (Council on Foreign Relations)
October 11, 2012
Oliver Stuenkel, Assistant Professor of International Relations at the Getulio Vargas Foundation in Sao Paulo, Brazil
At the G-20 Summit in 2009, global leaders announced that the heads of international financial institutions "should be appointed through an open, transparent, and merit-based selection process." In 2011, however, European leaders failed to honor their promise and insisted on a European to replace Dominique Strauss-Kahn as director of the IMF. In 2012, the Obama administration nominated Jim Yong Kim as its choice to be the new World Bank president. Obama's nomination of Kim essentially ensured his selection, causing exasperation among emerging powers for the United States' failure to consider the Nigerian candidate [Ngozi Okonjo-Iweala], who was widely thought to be more qualified.
A similar logic is likely to apply to quota IMF reforms, which were approved by the IMF Board of Governors in 2010. The IMF hailed these steps as "historic" and pointed out that they represented "a major realignment in the ranking of quota shares that better reflects global economic realities, and a strengthening in the Fund's legitimacy and effectiveness." Yet the 2010 reforms are subject to approval by national governments, including a deeply partisan U.S. Congress. Fearing a domestic backlash ahead of the presidential and congressional elections, the Obama administration has been unwilling to put the issue to a vote. Thus, as such, the reforms agreed to two years ago were not implemented ahead of the meeting. This is all the more paradoxical because the global economic developments during the past two years have dramatically strengthened the case for better representation for emerging powers. Only four months ago, at the G20 Summit in Los Cabos, Mexico, BRICS nations agreed to contribute more than $70 billion to the IMF, but not without voicing their concerns about the implementation of the quota reforms agreed upon.
While European and U.S. leaders have asked emerging powers to act as "responsible stakeholders," they are largely unwilling to constructively engage new actors and allow them to assume leadership within existing institutions. One of the consequences is growing support in Brazil and other emerging markets in the creation of a BRICS Development Bank.
The dithering and hesitation of established powers is remarkably short-sighted: While clinging to the status quo produces only tiny short-term benefits for Europe and the United States, it increases the trust deficit between the "Global North" and the BRICS, strengthening the hand of those in Beijing, Delhi, and elsewhere who argue that existing institutions are too rigid and therefore need to be undermined.
If the United States and Europe truly want to strengthen global governance, they will have to exercise leadership at home and convince their constituencies that engaging emerging powers is the only way of assuring that international institutions remain functional once the traditional powers are no longer in control. The difficult process of adapting to a new reality has just begun. In the coming years and decades, far more extensive IMF reforms will have to be implemented if the institution is to maintain its legitimacy in the twenty-first century.