Waiting for reforms

The long-standing demand of emerging countries for a greater voice in the structure of governance and policies of international financial institutions has again been voiced by finance minister Pranab Mukherjee, who has sought at least a 5-6 per increase in the share quota in the International Monetary Fund. A few days ago, Vice-President Hamid Ansari and Chinese Prime Minister Wen Jiabao also made the same demand at the Asia Europe Meeting (ASEM) summit in Brussels, and sought a deadline for the implementation of the proposed reforms. The demand had been made and even accepted at a number of fora, including the summits of the G-20 group, which best represents the world economy now. The IMF financial committee in Istanbul had also decided that greater share quota must be allotted to emerging countries. In spite all the decisions, implementation is still pending.

The decision-making power at the IMF and other Bretton Woods institutions represents the economic relations in the world after the Second world war. The relative economic strength in the world among nations has drastically changed in the last two decades but that has not been reflected in the IMF structure. The US has the highest quota but even small European countries, like the Benelux (Belgium, Netherlands, Luxumbourg) group, have more voting power than India. China, India, Brazil and South Korea will benefit most from a restructuring of the voting rights, as they have stronger economies now. But the developed countries are reluctant to let go their control of the body. It is not only the voting power but also the senior management structure of both the IMF and the World Bank that needs to change.

The top management positions are now monopolised by the US and Europe. There has been agreement to have a better, merit-based and transparent selection for these positions with adequate representation for emerging countries.

Only when the two institutions are reformed there will be credibility for their actions and greater accountability in their functioning. The role of the IMF has changed much and it has more relevance now, in the wake of the recent global economic crisis. To make it a more effective instrument of change, the developed countries have to let go their stranglehold on it. The legitimacy of these institutions will be questioned if there is continued dilly-dallying on the reforms.