Emad Mekay

WASHINGTON, Jun 9 2005 (IPS) — The United States is pushing the International Monetary Fund (IMF) to change its voting system to include rising economic powers in Asia, in what some observers say is a U.S. bid to keep increasingly independent Asian nations tied to the public lending institution, where Washington has the dominant voice.

"If countries are growing strongly and making increasing contributions to the global economy, then there should be a parallel enhancement of their position in the IMF," said Randal Quarles, acting under-secretary of the Treasury, in a statement to the U.S. Congress.

"This is vital to maintaining the goodwill of members, on which the IMF relies to make its lending possible, and to preserving the centrality of the IMF in the global financial system," he added.

His statements came after ministers from developing nations, especially in Asia, complained in April that the current under-representation of developing countries in the IMF and its sister institution, the World Bank, undermines the legitimacy and effectiveness of these institutions.

They said that giving the Western industrialised nations near absolute powers in those institutions, with lending programmes in many developing countries, does not reflect the current economic balance of power.

Asian countries are accumulating huge amounts of currency reserves, empowering them to break free from loans by the IMF – where the United States, as the largest shareholder and the world’s largest economy, has managed to pass conditions and economic policies favourable to its transnational corporations.

Now East Asian countries are running the world’s largest surpluses and have the world’s fastest growth rates.

Earlier in May, China, Japan, South Korea and the 10 members of the Association of Southeast Asian Nations (Asean) reportedly said they had agreed to expand their network of bilateral currency trade, creating in effect what could be an Asian Monetary Fund that would rival the IMF.

Asian countries, and many others in the developing world, have grown especially leery of the policies recommended by the IMF and Western powers.

They say that privatisation, deregulation and public spending cuts that put the market before social responsibilities – all staples of IMF lending programmes – have alienated developing nations from the Fund and the Bank and caused more problems that they solved.

In his testimony Tuesday at a Senate banking subcommittee hearing, Quarles urged progress on the IMF votes issue. However, he added that it should not be linked to an increase in the IMF’s quota resources given the current strength of the Fund’s financial position. Washington is now proposing shifting quotas within the existing total.

Quotas generate most of the IMF’s financial resources. A few members of the Group of Seven (G7) most industrialised nations, comprising Britain, Canada, France, Germany, Italy, Japan and the United States, hold a majority of the shares allocated by the quota system.

This allows them to dominate the institution’s decision-making process. The size of the member’s quota determines the country’s voting power and the country’s borrowing rights.

But now the United States says it wants reform at the Washington-based Fund to reflect the advent of the monetary union in Europe and the increasing role of fast-growing emerging markets, especially in Asia.

"Change will not come quickly or easily. The issues are complex, and extensive dialogue and cooperation will be needed to find a way forward," Quarles said.

"Yet we believe the effort is worthwhile – and indeed essential to the long-term effectiveness of the institution. An IMF for the future must be an IMF in which all have a stake."

Despite being international institutions that preach good governance, decision-making in the IMF and the World Bank is far removed from the principle of one country-one vote.

Directors from countries of the G7 control more than 60 percent of votes on the boards of the Bank and Fund. The U.S. administration has veto power over any extraordinary vote that requires a supermajority vote of 60 percent or more.

That system has deprived more populous, and now economically successful, nations like India and China, which combined represent more than 2.3 billion people of the world’s near seven billion people, of a real say, while giving countries like Britain, France and the United States greater clout.

Many analysts see the U.S. calls for reform as a new tactic to retain power one of the world’s most influential financial institutions especially as Asian countries, flush with currency reserves, are reportedly moving towards more integration among themselves. If it happens, this will make the IMF even more irrelevant, they say.

One of the congressional hearing witnesses, Allan H. Meltzer, a visiting scholar at the conservative American Enterprise Institute in Washington, suggested the large accumulation of reserves by Asian countries as well as their moves to further advance toward development of a regional financial bloc indeed pose a threat to the Fund.

This recognition in the United States, says one analyst, explains why Washington is willing to slightly loosen its grip on the Fund for the sake of pre-empting any Asian competition to the IMF.

"The U.S. is going to give them (Asian countries) as much of an increase as possible in voice and vote on the IMF by allowing them to increase their quotas without the U.S. giving up its dominant share," said Rick Rowden, policy officer at the Washington-based ActionAid International USA.

"They are going to say ‘okay, okay, we’ll give you a little more say in IMF’, but Treasury is not going to give away the shop and surrender its dominance on IMF board," Rowden said.

"So it’s really a strategy of co-optation and really a pre-emption of the Asian Monetary Fund idea."

His perspective is supported by the fact that Quarles said that the U.S. is pushing for a number of other changes at the IMF.

Key priorities for the United States, he said, include strengthening IMF surveillance and crisis prevention; supporting economic liberalisation without lending; and enhancing the IMF role in low income countries to achieve better results – all changes that appear designed to maintain the IMF’s role in an increasingly suspicious world.