The IMF in a seminal paper published on 2 October ahead of its annual meeting in Lima next week has called for a radical change in the governance of the fund to reflect the growing importance of emerging and developing economies (EDEs).
“We argue that we are indeed on the cusp of an epochal change in terms of economic power, the type of which has not been witnessed in the past 200-250 years,” the report says. “With the expectation of such change accelerating further over at least the next couple of decades, changes in global economic governance will have to be more substantive than the current incremental change envisaged.”
The IMF says the share of EDEs in global GDP is expected to increase to more than 60 per cent by 2020 in PPP terms from about 40 per cent in 2020. The share of G7 advance economies countries is expected to fall to about 30 per cent from 44 per cent over the same period.
The paper calls for votes in the IMF should be redistributed to increase the influence of China and other EDEs. At present, the US has 16.7 per cent of the vote in the IMF, which means that it can resist vetoes by other IMF members because this needs 85 per cent of IMF votes. The IMF argues that the proposed reallocation of votes to reflect the balance of the global economy will deliver an advantage to the US because it will mean a larger reduction in voting rights among EU countries. They now have 30 per cent compared with less than the 20 per cent their combined economic size merits.
“…significant changes have to take place so that global economic governance arrangements are seen to be equitable, fair and effective from the point of view of different stakeholders,” the IMF report says. “The era of North American and European dominance is now waning and other economic powers are emerging. This must be recognized and responded to adequately.”