US scuttles IMF reform with a new plan

Many of the Global South countries with India in the lead had been asking for changes in the shareholding rights in a global financial institution like the International Monetary Fund (IMF), which was set up in 1945 soon after the end of the Second World War at Bretton Woods in the United States, along with the World Bank. They have come to be known as Bretton Woods’ institutes.

India’s Prime Minister Narendra Modi had been arguing that the world has changed in the past 75 years and more since these global arrangements had been made, the world has changed and these institutes must reflect the changed situation. This meant that emerging economies’ shareholder rights must increase.

To counter this demand, the United States is proposing that the shareholding countries must increase their contribution in proportion to their existing share-holdings, and this would increase the IMF kitty to deal with member-countries in need of crisis-packages. The political and economic clout that would have followed changes in shareholdings has been shelved for now. The United States, which is the largest shareholder with 16.5 per cent remains the powerful country, and China with 6.39 per cent now stands at the third position after Japan with 6.46 per cent, when shareholding was last re-arranged in 2010.

China with its share of 18 per cent of global GDP has come in at the expense of European members of the IMF. And there is a strong resistance to Chinese domination. The lender of last resort had been a Western preserve but with the rise of economies like that of India and Brazil, along with that of China, there is an economic power shift that the West is trying to resist.

The United States is the only Western economy that continues to dominate the global scene while European powers like Germany, France and the United Kingdom are declining, mainly due to the rise of larger economies like India and Brazil, apart from China. There have been attempts to find an alternative to move from the West-dominated IMF-WB system when China set up the Asian International and Investment Bank (AAIB), with China as a dominant shareholder (27 per cent) and India as second (eight per cent), and with 109 members. It had an initial capitalisation of $100 billion, and it is headquartered in Beijing. But China is now criticised for dominating the AIIB.

It is inevitable that there would be a clash of interests and the more powerful economies like the US and China would want to dominate. But global financial institutions need to be truly international and decisions have to be global if issues like climate change are to be tackled successfully. It is clear that poor countries would need financial aid to move to green energy systems and the funding has to come from the IMF, WB or AIIB.

It has to be seen who will take the broader view of the global issues and take up the financial burden. The US and China are of course in the lead, but the other countries, which are numerous, have to have a say in the matter, and the agenda cannot be set by either the US or China. The US-led IMF will want to show greater flexibility in its working because of the democratic spirit, and it is likely to increase the funds available to poor countries.

That is the tactic the US and its allies want to adopt at Marrakesh. The West wants to remain an influential player in the global economic system even though many of its members, mainly European powers, are in relative economic decline. It might be said that the real tussle for global power is in the economic sphere, and non-Western countries are rising steadily to the top.