As more countries race to escape its tutelage, the International Monetary Fund (IMF) has been advised to implement a "double majority voting system" to salvage its teetering global standing by reforming its "democratic deficit". These voting majorities should be based on a system of one-country one-vote combined with economically weighted quotas for any decisions to be made, according to a new report by two Britain-based IMF watchdog groups, the Bretton Woods Project and One World Trust. "There is a problem at the IMF and reform is needed," Jeffrey Oathamon, one of the authors of the study, told IPS. "Reforms must recognise the political reality of existing power distribution".

The IMF has been facing a near exodus of borrowers trying to its escape its sway by paying up their debts early to have cleaner balance sheets. The latest was the Philippines, which announced in December that it was paying 220 million dollars in obligations to the Washington based lender. Ecuador signaled its intention to do the same this month. Several borrowing nations have also unloaded their IMF debt stocks, saying that IMF loans have become a vehicle for intrusive dictates from the Fund's economists and patrons among the world's richest nations. They say the advice they were getting was influenced by the power structure inside the Fund and tilted heavily towards facilitating global trade and business for corporations based in developed countries.

The IMF's advice to borrowing nations of liberalisation, currency devaluation, removal of crucial state subsidies and dismantling of social services have all come under fire for furthering social strife and speeding economic meltdown, as was the case with Argentina. "The IMF is losing its legitimacy as a truly international institution because it fails to provide developing countries with enough control over the decision-making process", says the new report "Bridging the Democratic Deficit". It says developing nations can get their voices back into the policy formulations of the international lender if the new proposals are taken up.

Under the new proposals, a state-weighted double majority would increase developing countries' influence while continuing to protect richer countries' effective veto power. This approach also provides an incentive for countries to form bigger coalitions to pass resolutions, its proponents say. "Only double majority has the chance of being accepted by middleand low-income countries wanting more power and wealthier countries not to lose too much power", says the report. The current voting system puts weaker members at a disadvantage in decision-making, critics say. This is in part why the IMF is facing further loss of confidence and disengagement by member countries.

"By accepting the political realities inherent in the relations between countries, incremental reforms can achieve more voice for developing countries without affecting quota allocation", says the report. The report suggests that decisions at the Board of Governors, a body comprised of the finance ministers of the IMF's member nations, and the Executive Board, which runs the day-to-day business of the Fund, would require the requisite majorities of both the number of IMF members and their voting weight. Simple majority decisions would then require approval by more than 50 percent of the voting weight and more than 50 percent of the membership, while super-majority, needed for the most important decisions, would require either 70 percent or 85 percent of both the voting weight and membership.

The Fund says it's working on similar reform proposals. The shareholders agreed in September to launch a two-year programme for a new quota formula plus at least a doubling of the number of basic votes. Increases in votes for China, South Korea, Mexico and Turkey have already been approved. Yet the new report suggests the proposals do not go far enough. Quota formula recalculation, a proposal currently on the table, even if accompanied by an increase in basic votes risks further reducing developing country influence in decision-making, its authors argue. The recalculation will be based either on Gross Domestic Product or the Purchasing Power Parity. Even proposals for a one-country, one-vote system would be too sweeping and will never gain sufficient support to be implemented, the report says.

The proposals by the two independent groups differ from those on the table in that a double majority voting system would increase the power wielded by developing countries to try to balance it with that of others whose influence is very strong. "As our proposals do not work through a readjustment of share quotas, it isn't a zero-sum game like quota reform", Oathamon said. "In quota reform, a country must surrender quotas so they can be reallocated to member countries holding fewer quotas". The two organisations behind the report say they are now ready to discuss it with the Fund's shareholders as well other stakeholders concerned with the IMF.

*** See the full report: Bridging the democratic deficit ***

Related information:

The globalizers in search of a future: Four reasons why the IMF and World Bank must change, and four ways they can, by Ngaire Woods (Center for Global Development)