The International Monetary Fund (IMF) has reached upon a landmark agreement that will see membership being allowed to emerging economies that are powering the growth of the world economy. This represents better the growing shift of power from the west to the east as the western world struggles to post the kind of numbers that the eastern world is managing to churn out with such amazing consistency. The details of the deal reveal that a little more than 6% of the voting power at the International Monetary Fund will end up shifting towards developing nations that have better dynamics and growth prospects. The prime beneficiary of such a move are nations like China, which is all set to become the third-largest member of Washington based international lender that is a 187 nation strong.
As an extension of this decision, Europe will end up forgoing two of the eight or nine seats that it holds on the International Monetary Fund’s Executive Board. The Executive Board itself will continue to have 24 members, but there will be better representation of emerging economies in the new scheme of things. This move is something that the United States was strongly advocating and no less than that which it was expecting to be done. Washington itself holds a 17.67% stake in IMF quotas (or member subscriptions as they are termed) and they will retain their veto power on the fund’s most critical decisions and that has not changed at all.
By itself though, this represents the single largest reform in the history of the international pillar of banking. The deal itself was ratified and pushed through by a meeting of the top guns of the international financial community, which included finance ministers and central bank governors of the group of 20 leading economies (or G-20). As the clout of developing and emerging economies such as China, India and Brazil has been growing so too has the clamor to give them voting rights and that is what this move will do. About a year ago the G-20 reached a consensus to shift a minimum of 5% of all voting rights to these economies since their influence within the fund was not fully reflected keeping in mind their growing influence as major drivers of the global economy.
The governance reforms might take a while yet for all the finer details to be realized, but the heartening thing to take away from it is that it is a reflection of the new global economic order, one not fully depicted by an aging IMF that was setup to reflect the realities of a global economy post World War II. Currently, the fund’s five single largest members, namely the United States, Japan, Germany, France and Britain, do not only have seats on the Executive Board but also have the right to appoint the executive directors. That is now a thing of the past as these directors have to be appointed by consensus of the board. This is perhaps the first step the west has taken as cognizance of the growing clout wielded by emerging economies and it is unlikely that this will be the last we will hear of it either.