BRICS justifiably calls for IMF reforms

Rising global economic uncertainties and slowing global growth have intensified calls for reforming the International Monetary Fund. The Joint Declaration of the 17th BRICS Summit in Rio de Janeiro, Brazil, reiterated the grouping's call for IMF reform, especially on quota distribution and management appointments. BRICS has sought the establishment of a new system which would more accurately reflect the global economic landscape and increase the representation of developing countries in the IMF's decision-making process.

This is not only a collective call from developing countries for fair representation, but also exposes the structural imbalances in the current international financial governance system. The existing power structure of the IMF is still dominated by a select few developed countries, contrary to the reality of the global landscape.

Since its establishment in 1944, the IMF has changed its function from facilitating post-war reconstruction to maintaining global financial stability and managing crises. But its governance structure has not changed accordingly.

For instance, China, the world's second-largest economy, holds less than half the voting share in the IMF relative to its economic heft, while some smaller European countries continue to enjoy disproportionate influence due to some questionable or outdated factors determining the quota distribution formula, such as "openness". This inequitable distribution reflects systemic biases in the IMF's institutional design, which has long undermined the representation and voice of developing countries.

But the main obstacle to reforms is the US' veto power, owing to its more than 15 percent voting share. The United States uses this privilege to thwart any major decision requiring an 85 percent supermajority vote. The veto power has therefore become a tool for Washington to prevent any reform not in the interest of the US, or would undermine its global dominance.

BRICS' proposal for IMF reforms, however, is much more than protesting against representational inequity; it is a move by the Global South to reconstruct the international financial architecture in a way that would reflect the current global economic reality.

Countries such as Brazil and India have for years been calling for changing the IMF quota formula through platforms such as the G20 and the United Nations, arguing that the current system undervalues the economic contributions of developing countries while lacking transparency and fairness. African states, too, have demanded greater representation, emphasizing that their demographic weight and growth potential are still not reflected in the IMF's structure.

The IMF has been found lacking in fulfilling its duties. Its lending policy, for example, has long been criticized for overemphasizing the need for austerity, liberalization and privatization while ignoring countries' specific conditions — often exacerbating their economic distress. Research indicates that IMF programs often lead to declining incomes and heightened debt risks in targeted countries.

In particular, the 2008 global financial crisis and the COVID-19 pandemic have exposed the structural deficiencies of the IMF, including its sluggish approval process, inadequate funding capacity, and excessive conditions. These shortcomings have further eroded its credibility as the "lender of last resort".

For China, advancing IMF reforms is not merely about getting greater representation; it also relates to its influence in global governance. It's disproportionately limited voice within the IMF impedes its capacity to help shape international rules.

With finance increasingly becoming a tool to gain the upper hand in geopolitical competitions, the US' ability to leverage the IMF for policy coercion has sparked widespread concerns. Driving the IMF's reforms would help establish a more neutral and diversified financial support architecture, creating a more secure international financial environment for China and other developing nations.

For China, this process presents a dual opportunity of increasing its influence in the IMF while strengthening coordination with fellow emerging economies of the Global South. Concurrently, BRICS member states are adopting a two-pronged strategy: advocating for reforms within traditional mechanisms while building their own financial platforms. The New Development Bank has significantly expanded infrastructure financing for emerging markets and developing economies in recent years, becoming complementary to the existing financial system.

At the recent NDB annual meeting, Dilma Rousseff, president of the NDB, said global financial resource allocation remains severely imbalanced, and many developing countries are facing financing obstacles.

The NDB not only provides diversified financing channels but has also gained recognition for its more inclusive institutional design. It does not seek to replace the existing global financing system. Instead, it is exploring alternative approaches, for example, to reduce the reliance on traditional mechanisms and offering developing countries more options.

Therefore, the joint call for IMF reforms by BRICS members is a response to the shifting global power structure. The reforms must recalibrate the quota formula, break developed countries' monopoly over IMF's management, eliminate biases, and democratize the decision-making process, by, among other things, abolishing the US' veto privilege.

Through such measures, IMF can genuinely represent the interests of all the economies and transform itself into a cooperative platform for global stability and development.

Given the growing influence of the Global South, how international institutions reflect this shift has become a pivotal issue in global governance. Should developed countries continue to stall reforms, it would not only undermine the IMF's legitimacy but also prompt developing countries to more expeditiously turn to regional mechanisms such as the NDB and the Asian Infrastructure Investment Bank, fostering a new, polycentric and pluralist global financial order.

In this process, leveraging its highly open market mechanisms, transparent institutional environment, and close ties with the Chinese mainland, Hong Kong is well-positioned to serve as a bridge in the restructuring of the global financial system.

BRICS members' call for IMF reforms represents a strategic response to the ongoing global power reconfiguration. In today's era of multipolarity, the IMF can maintain its international position only by reforming itself to become more representative and fair.

The author is the dean of the Belt and Road Research Institute at Hainan University, and chairman of the China Silk Road iValley Research Institute. The views don't necessarily reflect those of China Daily.