Thursday October 4, 02:53 AM
Desperately seeking relevance
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By N Chandra Mohan
Dominique Strauss-Kahn, former finance minister of France, has taken over as the managing director of the 185-member IMF at a juncture when its relevance is rapidly fading. The Fund faces a growing financial shortfall as it no longer plays the role that it did during the late 1990s, when it rescued several East Asian and Latin American countries from currency crises and financial contagion. Such countries have mostly repaid their debts and shun its credit. With a drastically shrunken loan portfolio, the Fund is even contemplating selling gold to meet its expenses! If the Fund is to remain relevant, it must undertake deep reform to ensure that its governance structure mirrors the transformations in global economic power. Its governance structure reflects the old post war equilibrium where the bulk of votes were allocated to industrialised nations. Euro-pean leadership is, in fact, taken for granted as every candidate for the MD's post is nominated by executive directors appoint-ed or elected by West European countries. Strauss-Kahn's candidacy was assured. Of course, the superpower that calls the shots at the IMF and World Bank is the US, as the quota subscription regime gives it 16.79% of total votes and a veto over every decision. Thus, while emerging economies now account for 50% of global GDP, they account for just over one-fifth of total IMF votes-not much higher than that of the US alone! The latter, in league with Europe, can take on the com-bined might of emerging economies and resist any reforms towards a more equitable participation. There still are 10 Europeans as compared to five from Asia in the Fund's 24-member executive board-anomalous to the Continent's diminishing share of global GDP when compared to Asia. Isn't it anomalous that, say, India is bigger than Belgium in size but has less votes? Or that China is bigger than Italy but has less votes? Being among the world's top three or four economies makes no difference to this state of affairs, it seems. To be sure, the Fund did undertake an ad hoc increase in the quota (which determines voting power) of China, South Korea, Mexico and Turkey. But this is not enough as the relative importance of other emerging economies like India has sub-stantially increased. Such ad hocism without voluntary reductions from European countries might even decrease India's quota share and voting power. Strauss-Kahn has his work truly cut out, then.
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