Clamour for action on IMF quotas as US continues to stall

Economic policy-makers from across the globe have called for progress on reforms to International Monetary Fund (IMF) quotas that would give emerging markets a greater say in the organisation.

If enacted, the reforms would see emerging markets contributing more money to the IMF, and concomitant with that, a stronger say in the Fund's activities. But countries representing 85% of total vote share must first ratify the reforms.

Since the reforms were agreed in late 2010, 141 countries have ratified them, but a handful continue to drag their feet. Chief among these is the US which, with a vote share worth 16.75% of the total, wields an effective veto.

At a meeting of the International Monetary and Financial Committee (IMFC) on October 12, a number of central bank governors and finance ministers urged haste in the reform process. Speaking on behalf of a number of south-east Asian nations, Zeti Akhtar Aziz, the governor of Bank Negara Malaysia, said the reforms are "crucial" to strengthening the IMF's "credibility, legitimacy and effectiveness".

Similarly, Ewald Nowotny, the governor of the Austrian National Bank, said he was "disappointed" at the "slow progress" of the reforms. Yi Gang, deputy governor of the People's Bank of China, Wolfgang Schäuble, the German finance minister, and Fahad Al-Mubarak, the governor of the Saudi Arabian Monetary Authority, all expressed similar sentiments.

Although the others avoided apportioning blame, Alexandre Tombini, the governor of the Central Bank of Brazil, went straight to what he saw as the source of the problem. Representing a group of Latin American countries, he said "delayed approval" by the US Congress remained the primary obstacle to reform.

Tombini noted that the US is now the only G-20 country that has not ratified the reforms. "It is hard to understand why the host country of the Fund is holding back this reform," he said.

The Brazilian governor warned that the under-representation of emerging markets, besides being unfair, was starting to create tangible problems. Because the quotas have not been augmented, IMF assistance to countries such as those in the eurozone is increasingly relying on voluntary borrowing, much of it supported by emerging markets such as Brazil.

"Emerging market countries have honoured their part of this political agreement. It is time for the US and Europe to deliver theirs," Tombini said.

Jacob Lew, the US secretary of the Treasury, said the US has been "strongly supporting" efforts to improve the IMF's governance and strengthen its finances. "We are actively working with Congress to secure legislation implementing the 2010 IMF quota reforms," he said, repeating a line delivered at the IMFC meeting in April this year.

With the US government still shut down and the country due to hit its debt ceiling on October 17, it looks unlikely that Congress will devote much attention to the quota reforms in the near future.

According to IMF projections, the changes to the vote shares will be relatively limited if the reforms are finally ratified. The US would see its vote share slip from 16.75% to 16.5%, while advanced economies' share as a whole would fall from 57.9% to 55.2%. The emerging markets' share is expected to rise from 42.1% to 44.8%, and the share held by developing countries from 34.5% to 37.1%.