Time to push on with IMF reform

In addition, as the US economy improves, its agenda priority has changed. It was when the US urgently needed the help and support of the emerging economies at the peak of the global financial crisis that it actively promoted the IMF quota and governance reforms. Now, with quantitative easing coming to an end, and the return of some manufacturing to the US, the economic recovery in the US has gained a relatively solid foundation. In such circumstances, the quota expansion for countries with high foreign currency reserves in the IMF is no longer urgent.

There is growing discontent about the US' chop and change approach. Fred Bergsten and Edwin M. Truman, senior fellows of the Peterson Institute for International Economics, wrote a letter to the Financial Times, calling for the IMF to move ahead without the US. If the US does not want to participate in reforming the IMF, it should get out of the way.

They proposed two options. One way would be to make permanent the 2012 initiative by Christine Lagarde to arrange temporary bilateral credit lines of nearly $500 billion from 38 countries, augmenting the IMF's capability to finance its lending. The US opposed that proposal, but the IMF and other countries could convert it into a permanent arrangement, placing decision-making in the hands of the funding countries, not the US. A more radical approach would be to increase total country quota subscriptions in a manner that would also not allow the US to stop the IMF from reforming.

More and more countries are fed up with the US dragging its feet on approving the reform package. Some members of the IMF's steering committee have indicated their desire to deprive the US of its veto power on the IMF executive board.

The US' reticence to endorse the IMF reform plan not only indicates its lack of confidence in its future growth and inward-looking inclination, it also undermines its claim to global leadership.

The failure to implement the reform plan has seriously affected public confidence in the IMF, making its representation, legitimacy and relevance questionable in the eyes of the international community. Therefore, it is imperative that the IMF rapidly advance the reform plan.

The international community will closely follow the alternative reform options that the IMF comes up with later this month.

Courtesy: chinausfocus.com

The author is a senior research fellow at the China Foundation for International Studies.