Mark Sobel, Deputy Assistant Secretary for International Monetary and Financial Policy at the U.S. Treasury, has written to CGD president Nancy Birdsall stating that the U.S. is in favor of changes that would allow Asian and other emerging market economies to increase their voice in the IMF and thus make the Fund more representative and legitimate.
Mark wrote in response to a letter from Nancy that appeared in the March 2 Financial Times concerning an FT editorial about IMF reform proposals put forward by Mervyn King, governor of the Bank of England, and Rodrigo Rato, managing director of the IMF. (For a related discussion, see Whither the IMF? Q&A with Liliana Rojas-Suarez).
In her letter (pdf), Nancy argued for more far-reaching reforms, including especially changes in IMF ownership, to give developing countries greater voice. She asserted that such reforms had been blocked in part by
the U.S. (abetted by a hapless Europe) resisting for more than a decade an even-handed and sensible change in the rules of IMF governance that changes in the global financial system required.
The letter concluded:
The fundamental challenge at the IMF is…to persuade the faltering hegemon and its long-standing partners, in their own interests and in the interests of global stability and prosperity, to move beyond their short-sighted resistance to a change in the ownership structure.
Mark responded with a thoughtful and lengthy letter setting out U.S. views on IMF ownership reform and increases in capital. The letter contains important information about U.S. policy on this issue, so I’m happy that Mark agreed for us to post the full text (pdf) and share excerpts through this blog.
The letter said, in part,
One of your central points is that the United States has been resistant to sensible changes that would allow Asian and other emerging market economies to increase their voice in the IMF and thus make the Fund more representative and legitimate. This is decidedly not the case…
In September 2005, [U.S. Treasury] Secretary Snow and Under Secretary Tim Adams both spoke out for intensifying the effort to find a solution to this problem on an urgent basis in order for the IMF to put in place a modern governance structure – in terms of quota shares and an Executive Board that legitimately represent its members….
- Urged that weight be shifted from economic countries and areas with excess weight and representation to those whose enormous strides had not been properly reflected.
- Underscored that even though the poorest countries are among the most overweight, their relative positions in the IMF should be maintained
- Stressed that consolidation of European chairs in the Executive Board would help increase the relative voice of developing countries and emerging markets in the IMF.
They also observed that: the IMF is a shareholder organization; the US quota share is slightly above 17%; and even though the United States accounts for some 30% of the world economy, it does not seek an increase in the U.S. quota share nor does it see any reason for that share to decrease.
OK, so who’s overweight? Mark is too much of a gentleman (and diplomat) to call the Europeans fat. But it’s pretty clear that the U.S. thinks the Europeans should lose weight so that the developing world can gain some. What are the prospects for that?
One basis for a compromise is the weighted voting system that Kemal Dervis, a former CGD Non-Resident Fellow who is now chief administrator of the UNDP, proposes in his book, A Better Globalization: Legitimacy, Governance and Reform. Kemal suggests that the IMF and World Bank be overseen by a UN Economic and Social Security Council with voting based on a combination of factors including population, GDP, and contributions to global public goods.
There are several advantages to such an approach, including increased objectivity and transparency. And it avoids the unpleasant problem of having to suggest that one’s friends are overweight.