"IMF Reform at the G-20"
In the Blogger’s Handbook they tell you that if you want to drive pageviews you need as many posts as possible on the thrill-a-minute subject of IMF governance reform. But it’s not just a topic to boost traffic, it’s also important. The IMF’s ability to function as a lender of last resort is crucial to resolving financial crises, but some poor decision-making at the IMF over the past 15 years has caused a lot of problems for the world. And it looks like the Obama administration has succeeded in pushing for some positive changes in this regard. Simon Johnson explains:
The IMF currently has about $250bn to lend; this is not enough to really make a difference in a world of trillion dollar problems. The Europeans proposed to raise this to $500bn, which seems still low – particularly as it’s mostly European countries that have a pressing need to borrow; you guessed it, the Germans don’t want to put up more. The Obama Administration is pushing for closer to $1trn in total IMF funding and, after a lot of hard work, seem likely to get close to this target. [...] But that’s not all. The masterstroke is simple and also brilliant. The US is pushing for – and likely to get – the Managing Director (known as the MD) of the IMF to be selected through an open, competitive and merit-based selection process.
Why is this a big deal? Governance of the IMF has been for too long dominated by Europeans – by convention, every MD has been European since the founding of the organization; the results have been questionable. The MD has enormous power and great discretion on almost all questions – the IMF is subject only to its own rules and its executive board is dominated by… Europeans. This combination wore thin with much of the rest of the world a long time ago.
Deeper governance reform and de-Europeanization of the Fund (e.g., Europe is massively overrepresented in terms of board seats) is long overdue, but the Europeans have been strong enough to slow down the process in the past. As a result, middle income and poorer countries rightly question if the IMF really works for them or just for the Europeans (and, it must be said, for the United States.)
This should not only help the United States improve its relationship with key developing economies, but more importantly will make sure that the IMF can continue to function as an important and valuable element of international governance. Getting this done would probably constitute more diplomatic work than the Bush administration managed to pull off in eight years.