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Business/Finance See other Business/Finance Articles Title: IMF may resort to Plan B if US does not approve reforms Want... Reforms to the division of voting rights and management structure of the IMF were originally set to be implemented by the end of 2014 but have now been delayed for four years, according to a report in China's state-run International Finance News. The US stands as the biggest stumbling block to reform. At this time last year, the IMF's managing director Christine Lagarde stated, "I hope that we can exhaust all the opportunities under Plan A, and I don't think that our institution should move to Plan B until we have full certainty and massive disappointment that Plan A is definitely dead." This year, the G20 countries reaffirmed that the reform plan is a high priority and continued to urge the US to approve the plan, but several IMF members have already begun to seek out a compromise. On April 20, IMF deputy managing director Zhu Min stated after the 2015 Spring Meetings of the World Bank Group and the IMF that the fund had already adopted a Plan B, which seeks to work around the US. The annual meeting of the World Bank and the IMF opened in Washington DC on April 16. A meeting of the G20 took place at the same time, at a nearby location. This year's IMF meeting represents another effort to implement reform in the IMF. The IMF emerged after World War II, led principally by the US and Europe. The US has prevented new and emerging economies from being granted a greater role in the IMF than before to account for the shift in the world order since its founding. A Plan B that works around US resistance to reform may be the only option left to the organization. Plan B Zhu Min said that during the 2015 IMF meeting that the institution had again expressed its disappointment that the US continues to oppose the 2010 reform model and appealed again for the US government and congress to pass the proposal. "At the same time, we are very clear that we can't keep waiting on the US and its Congress, we've already launched a Plan B, which was approved at the meeting," he said. "In the event that the 2010 IMF reform proposal cannot be completely implemented, we will consider transferring funds from developed countries or adding funds for new and emerging economies, so that new and emerging economies can reach the required standards as soon as possible," said Zhu, adding, "The meeting demanded that we accelerate progress on this project." Zhu stated that the IMF's launch of a new reform plan has led to questions over whether they will drop the 2010 plan, or if the two reform efforts will be carried out simultaneously. The recent meeting suggested that Plan B will be launched in order to try and meet the goals of the 2010 reform proposals. Emerging and Developing Countries The IMF called for a 6% shift in share quotas to emerging economies in 2010. At the same time there will be a change in the management board, to make it more representative, with the use of voting systems. After the reform, the share of votes of Brazil, Russia, India, China and South Africa (BRICS) will be increased from 4.5% to 14.3% collectively; of this China's voting rights will be upped from 3.72% to 6.39%, making it second only to the US, whose share will be reduced to 17.4%, and Japan with 6.46%. The reform effort will be the biggest reorganization of the IMF since its founding over 70 years ago. After the reorganization, the ten largest members of the fund will be, in order: the US, Japan, China, Germany, France, the UK, Italy, India, Russia and Brazil. This list includes four of the five BRICS countries. In addition the special drawing rights (SDR) are set to be doubled from the 239 billion in 2008 to 477 billion, which was equivalent to around US$737 billion using the exchange rate at the time the proposal was made. As the IMF's largest shareholder, the US has veto power, but Congress has consistently refused to approve the reform plan, mainly due to Republican opposition. Republicans have said they believe that the changes will increase the US's financial obligations and reduce its influence in the fund. Lagarde has stated that if Congress will not approve the reform measures, the IMF will consider temporary measures to help realize these goals, but which will not serve as a replacement for the original reform plan. The IMF has proposed a plan to increase flexibility, including strengthening its cooperation with regional organizations. Another source stated that Lagarde had mentioned to him two possible plans, which would work around the US, which may be launched this year. Is Plan B Ready to Launch? Lagarde has said that the IMF will now explore "alternative options," after Congress left the reform measures out of a 2015 budget deal struck in December 2014. However, any replacement plan will still need approval from the Obama administration, which may ignite another battle between the White House and the Republican-controlled Congress. Under the current framework, major initiatives require an 85% share of votes from IMF members, which gives the US veto power. As the US election is approaching, politicians will likely be keen to avoid controversy. Bangladesh Bank governor Atiur Rahma stated that he has not ruled out the possibility of a Plan B. He said that the controversial issue of IMF reform will likely be pushed until after the presidential election in the US. Although the IMF could work around the US, it would likely have a disastrous effect and could bring down the entire fund. Even though Lagarde appears to have already thrown down the gauntlet, what kind of plan will she come up with and how will it manage to work around the US? The most direct course of action is to expand the capital of the IMF while excluding the US from the process, which would adjust the relative proportions of the US and other countries in terms of shares and voting rights. One of the proposed plans is to demand a reform of the voting rights system, reducing the majority needed for approval from 85% to 80%, which would take away the US power of veto. Another proposal would be to set up a case-by-case system, wherein a country which invests more in an individual project will be given more voting rights on it. Alternatively, the IMF could change the way the allocation of shares and voting rights are calculated. The IMF agreement does not specify how shares should be divided. The IMF normally uses an equation to calculate the shares allocated to new members. The equation for the allocation of shares is based on a series of macroeconomic variables. The first equation was devised at the Bretton Woods conference of 1944 and was subsequently revised in 1963, 1983 and 2008. The current equation is based on GDP, economic openness, fluctuations in the Current Account and official reserves. GDP data is based 60% on market exchange rates and 40% on purchasing power parity exchange rates. This equation and elements within it are therefore subject to adjustment. However, it is not likely that the IMF will make moves such as these. The IMF decision-making structure is a majority vote system, including a simple majority of 51%, a special majority of 70% and a super majority of 85%. A super majority is needed for any major decisions taken, which would require the nod from the US. So the IMF is essentially powerless, as it needs the approval of the US to change the rules. Brazil has said that the reform in the allocation of shares and the reform in the fund management structure could be put to separate votes. For an adjustment in the allocation of shares only 70% of votes are required for approval. The measures already have enough support for this. The founding director of US think tank the Peter G Peterson Institute for International Economics, C Fred Bergsten, and former US Treasury and Federal Reserve official Ted Truman stated that there are two ways to force the US to yield on IMF reform. The first would be to make permanent the ad hoc bilateral borrowing arrangements, first proposed by Lagarde in 2012. Some 38 countries are currently taking part in the scheme, which has a capital pool of US$500 billion, and the US is not one of them. If it becomes a permanent arrangement, the decision-making rights will belong to those who provide capital and the US will have no say in the matter. The other option is a little more risky. Truman says that he hopes the IMF will abandon their 2010 reform proposal and negotiate a new version with the US government with a lower threshold, which would only require the approval of the US representative to the IMF, secretary of the Treasury Jack Lew. In the new version of the reforms, the IMF could raise the total funds of the organization to dilute the US share to eliminate its veto power. Of course, rather than forcing the US to yield, the ideal situation would be for the US itself to compromise on the issue. Lagarde still has not given up on this possibility. Given international pressure, there is still a possibility that the Republicans will yield on the issue. David Lipton, the first deputy managing director of the IMF, previously said that if the US had not approved the reforms before the end of 2014 then the IMF would discuss taking further measures, though he did not specify what these further measures might be. When asked if there was a Plan B, Lipton said only that he believed that the US would approve the reforms before it came to that. Approving "Plan A" in US Interests January, the final deadline for the approval of the reforms set by Lagarde, has come and gone and three months have now passed without US approval. The Democratic Party has already approved the reform of the allocation of shares, but the Republicans are blocking it, perhaps because they do not want the Democrats to be able to state it as part of their political record. Lagarde has said that the IMF will continue to push for reform, adding that China's economic power is continually growing, so its share should match its economic power. If the US does not approve the reform, it will undermine its influence and interests of the US and the IMF in the global community. If the 2010 reforms pass, the US share would only be reduced from 17.69% to 17.4% and the US would retain its veto power. 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#1. To: Tatarewicz (#0)
Maybe the US can declare the IMF a terrorist organization and start bombing it.
Sounds like about it. Yeesh, this makes it sound like IMF is not merely another front for the USG after all -- or is the monster simply escaping Dr. Frankenstein's grasp as other country amerika heading for the ash heap of history? "In the event that the 2010 IMF reform proposal cannot be completely implemented, we will consider transferring funds from developed countries or adding funds for new and emerging economies, so that new and emerging economies can reach the required standards as soon as possible".... I suppose I'm evil for thinking that sounds like bureaucratese for "get these emerging countries hooked on IMF debt, quick -- or they'll actually live free!!!"
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