One of the issues on the IMF agenda was the reform of the institution aimed at regaining its lost legitimacy both in Latin American and Asian countries. Since these have been long demanding an increased participation in the IMF, the institution’s Executive Board is currently analysing the issue, although the final proposal has not yet been submitted. Governments and civil society usually voice their demands in this respect, and this occasion was no exception.
From Latin American Governments
Latin American countries presented criticism, comments, suggestions and special situations before the International Monetary and Financial Committee through Argentine Economy Minister, Felisa Miceli. Being her first time before the IMF’s Meeting, Miceli spoke on behalf of Argentina, Bolivia, Chile, Paraguay, Peru and Uruguay.
In her speech, Miceli carried out an evalution of the global economy and financial markets and referred to the issues under discussion throughout the Meeting. Finally, she highlighted the main lines of action of the Latin American countries she was representing, with regards to the economic growth, inflation and adjustment measures currently underway.
In the first place, she posed a challenge to the global economy: “how to contribute to a sustainable growth for the world economy and how to better distribute its fruits to ensure that our fellow citizens remain supportive of the process” and more specifically, “how to achieve a kind of growth that is equitably distributed both among and within countries”.
Then, she referred to some critical points in the work being developed by the institution. “The IMF has been long warning that provided the US fails to reduce its fiscal deficit and other countries fail to correct other global imbalances, the adjustment will end up being imposed by the markets, and in this case it will not be progressive but sudden, and would unleash a global recession”.
Miceli said that this is a very likely scenario, on account of which it is “critical” for the IMF to have the capacity to make developed countries take the necessary measures in order to correct these imbalances.
"The IMF has been forthright in providing members with adequate analysis of the ever-growing imbalances and a bit less forthright in presenting them a policy package that could unwind them", stated Miceli.
The package to be fostered by the IMF should include “a fiscal adjustment in the US, measures to support domestic demand in China, more investment and domestic consumption in Asian countries and structural reforms promoting growth in Europe and Japan”, she pointed out.
She also critically referred to the “inconsistency between salaries and increased levels of productivity”. As she stated, “by giving policy advice requesting more labour flexibility without first considering whether internationally recognised core labour standards are being complied with, and whether the black economy is already providing too much ‘flexibility’ to the labour market, the Fund may have made things worse. (…) Rather than being part of the problem, I would like to see the Fund as part of the solution”, asserted Miceli.
"It is important that the Fund and the Bank request the opinion of the International Labour Organization (ILO) before giving policy advice on labour matters”, she underlined.
On the issue of quotas and the representation of members at the IMF, Miceli said that “changes are needed to better reflect the relative importance of developing countries in the world economy. This would certainly contribute to enhance the Fund’s credibility and legitimacy. However, we are doubtful that any meaningful reform could be done without revising the current quota calculation formula”.
By means of this, she expressed her disapproval of the plan that would – at a first stage – allocate additional voting power to rapidly developing countries such as China, South Korea, Mexico and Turkey. As she stated, to make these amendments without revising the formula “would represent only some window-dressing to maintain status quo as part of the ongoing strategic review”.
On the other hand, the G24 - made up by Argentina, Brazil, Colombia, Guatemala, Mexico, Peru, Trinidad and Tobago, and Venezuela in the Americas – has been long demanding an adjustment in the distribution of votes. This reform should include a “substantial” increase in base votes allocated equally to all countries, thus benefitting the poorest nations.
Besides, according to this Group, the IMF should introduce a new formula aimed at the distribution of all remaining votes, which should reflect the weight of economies based on the purchasing power parity, thus eliminating the distortive effects of price differences among countries.
The formula used to distribute votes in 1944, when the IMF was founded, is a complex equation aimed at giving greater power to allied countries against Germany in World War II. An effect resulting from this calculation, where foreign trade is of particular relevance, is that small European nations with open borders, such as the Netherlands, Finland or Switzerland, are the ones being most over-represented. At the present time, developed countries have 62 per cent of the vote within the institution.
From civil society
Civil society agrees on many of the points raised by the Argentine Economy Minister and the G24 but, on the other hand, reveals all that remains to be done both by national governments and IFIs.
With regards to governments, it is necessary to translate the economic recovery of countries within the region into better living standards for their people. In Latin America, the crisis first and economic growth later, have brought about a strong inequality in terms of income distribution. In this sense, the implementation of neo-liberal policies – often associated with IMF participation – has contributed to strengthen this inequality.
With respect to IFIs, civil society organisations have repeatedly denounced the effects caused by their participation in terms of policy conditionalities within the programmes. The extraordinary power of developed countries at the International Monetary Fund and World Bank has turned these institutions into instruments when it comes to the application and defence of their interests.
Since the IMF’s legitimacy is increasingly deteriorated, a reform of its operation principles and representation system becomes essential to its survival and is something that has been long demanded by groups monitoring IFIs activities. Therefore, a reform that simply “changes something so that all remains the same” would hardly likely be accepted, and the outcome of these meetings seems to be just an example.
-> See Felisa Miceli full statement at IMFC
-> See G24 full statement
