THE US Congress last month approved the 2016 Appropriations Bill that effectively put paid to the long drawn issue of International Monetary Fund (IMF) quota and governance reforms pushed for since 2010.
Back then when the IMF Executive Board recommended the reforms, managing director Dominique Strauss-Kahn described the agreement as a “major step forward in the modernisation of the IMF and its efforts to adjust its structures to the dynamic and changing realities of the global economy.”
His successor Christine Lagarde has also echoed similar sentiments following the authorisation by the US Congress to carry out the reforms.
In a press statement, she said, ““The United States Congress approval of these reforms is a welcome and crucial step forward that will strengthen the IMF in its role of supporting global financial stability. The reforms significantly increase the IMF’s core resources, enabling us to respond to crises more effectively, and also improve the IMF’s governance by better reflecting the increasing role of dynamic emerging and developing countries in the global economy”.
But are the quota and voice reforms enough and is the IMF changing quickly enough to truly reflect the changing geo-economic global landscape?
Few bitings for Africa
Africa for all the buzz about “Africa rising” of the last decade as well as the continent’s increased importance on the global economic scene as the world economy’s last frontier, it does not stand to benefit much from the vaunted IMF quota and governance reforms.
Before the turn of the new millennium over 80% of global economic output was accounted for by advanced economies, but that trend has changed drastically. By the IMF`s own reckoning, developing countries now account for close to 40% of the world`s output, largely spurred by China and other fast growing developing countries. (Six of the world`s ten fastest growing economies of the last decade are in Africa.)
Nigeria and South Africa, the continent`s two largest economies, and the leading economies in the 21-member African Group at the IMF, which also includes countries like Angola, Cote d’Ivoire and Zambia, will see their respective quota shares drop as a result of the recently approved reforms.
Nigeria – Africa`s biggest economy by GDP size – will see its quota decrease from 0.735% prior to the reforms, to 0.515% after the adjustments. South Africa will also see its quota decline from 0.784% to 0.411% after the reforms.
A country`s quota determines that country’s financial and organisational relationship with the IMF, including access to financing, voting power and subscriptions to the Fund. In fact, only Botswana, Angola and Ethiopia will see their respective quota shares increase following the reforms recently adopted. Collectively, the 21-member African grouping`s quota will fall to only 2.47%.
Though the Bretton Woods institution has been pushing to reform its obsolete post World War II structure, Africa has widely been seen as always getting the short end of the stick in its relationship with the IMF. From the much-loathed Structural Adjustment Programmes to other flawed developmental models the IMF has prescribed for Africa, the Fund has mostly been seen as out of sync with the needs of the African continent.
However, the move to have merit based, elected Executive Directors, ending the category of appointed Executive Directors (currently the members with the five largest quotas appoint an Executive Director) is a welcome development and will enable sub-Saharan Africa – whose 45 member countries represent a quarter of the IMF`s membership - to push for a 3rd chair for the region. Currently, sub-Saharan Africa is only represented by two chairs at the IMF.
Alternatives from the East?
But it is not just Africa that has felt the pinch of disproportionate representation and lending systems at the IMF. Other developing nations like China and India have not been done justice by the reforms too, suffering at the expense of advanced European countries that have benefitted disproportionately from the IMF lending practices.
Considering China`s share in world output production, its voting rights are still proportionally lower, effectively muting its say within the IMF relative to its peers. This has seen Beijing also advancing the cause for the Asian Infrastructure Investment Bank and more recently, the Brics Development Bank together with Russia, India and South Africa as alternatives to the IMF.
The reality is that most emerging countries, particularly those in Africa, require sizeable amounts of development financing to plug their infrastructure deficits among other funding requirements. However, this puts the IMF in a conflicted position as this runs counter to the institution`s original mandate as a lender-of-last-resort, a role it has played in countries such as Greece in the past.
And with this mismatch between the needs of most African states and the IMF itself, other international finance institutions might very well provide relief for the continent and meet its funding needs. Asia, is growing more influential by the day, driven by China`s rise, and Africa could ‘Look-East’ for the funding that it needs.
In spite of the recent reforms, a requirement for the US representative at the IMF to ask permission at home before voting to approve any large-scale funding programme still exists, and this signifies how much the IMF still has to do to make itself more relevant to developing countries. Much more still needs to be done, and for the most part, it is still business as usual for African countries at the IMF.