A statement by U.S. Treasury Secretary Tim Geithner released on Wednesday in advance of the G-20 meeting of finance ministers and central bank governors took two steps in the right direction.
First, Geithner sent a strong signal that the United States is not going to leave the developing world behind on the stimulus front, with a clear proposal to increase the borrowing capacity of the IMF by $500 billion, starting with a $100 billion loan from the United States. Second, and less widely noted but perhaps more importantly, the Treasury Secretary called for substantial reform in the governance of the international financial institutions:
"…the international community should comprehensively address substantial governance reforms of the international financial institutions. We should commit to a clear roadmap toward agreement on changes that would increase the voting shares and financial roles of the dynamic emerging market economies in the international financial institutions."
The key phrase here, of course, is “voting shares and financial roles.” The reform of the governance of international financial institutions, a cause that I and others concerned about the effective provision of global public goods have long tried to champion, has been given added urgency by the current crisis. The West now knows it needs the rest.
For those who are tracking the numbers, the $500 billion that Tim Geithner proposed is $100 billion more than the $400 billion that I argued that the IMF could make available in my call for the international community to put on the table a total of $1 trillion to help developing countries cope with the crisis over the next two years. The additional borrowing the United States proposed would add to already available IMF financing of about $300 billion, not counting and probably substituting for the SRD allocation I and others have recommended. Nobody knows exactly how much will be needed, or exactly how it will be raised, but it’s encouraging to hear the U.S. Treasury secretary talking about numbers of this magnitude.
The U.S. proposal is consistent with two principles: it’s in everybody’s interest that the international community put serious money on the table to help developing countries to cope with the crisis; and a substantial portion of that money should come through the existing multilateral institutions, the IMF and the multilateral development banks. Let’s hope that the U.S. Congress agrees to Treasury’s proposal for a $100 billion loan to the IMF, despite apparent European hesitation to weigh in. (Japan has already promised to lend the IMF $100 billion.)
Aside from the size of immediate IMF borrowing is the broader issue of increasing the contributions of China and other rising economic powers at the IMF and the World Bank – with the quid-pro-quo of their increased representation in the governance of those institutions. Momentum is building. On Monday the World Bank finally announced the members of an independent, high-level governance commission. World Bank president Robert Zoellick announced the creation of the commission last October, naming former Mexican President Ernesto Zedillo as the head. The commission is supposed to report back at the World Bank Group’s October 2009 Annual Meetings. The IMF, meanwhile, has its own governance commission, headed by South African finance minister Trevor Manuel.
Both commissions are led by experienced and capable individuals. But they will be swimming against the powerful tide of inertia in global official decision-making, especially when it comes to the multilateral financial institutions, with their many members and varied non-member stakeholders.
To help invigorate this process, I have launched a parallel Bretton Woods Non-Commission on Governance Reform of the IMF and the World Bank. This virtual group is dedicated to providing fresh and perhaps even revolutionary ideas for changing how these important institutions are run—specifically who decides what they do and how they do it. The first three commentaries, from Edwin Truman, Vijaya Ramachandran and Domenico Lombardi are online now.