The glacier has begun to creak. In the world’s most powerful dictatorship we detect the merest hint of a thaw. The unhurried perestroika is taking place in Washington, in the offices of the International Monetary Fund.
Like most concessions made by dictatorial regimes, the reforms seem designed not to catalyse further change, but to prevent it.
The fund has 184 members. It is run by seven of them – the United States, Japan, Germany, the United Kingdom, France, Canada and Italy.
These are the seven countries that (with Russia) promised to save the world at the G8 meeting last year. The junta sustains its control by insisting that each dollar buys a vote. The bigger a country’s financial quota, the more say it has over the running of the IMF. This means that it is run by the countries that are least affected by its policies.
A major decision requires 85% of the vote, which ensures that the US, with 17%, has a veto over the fund’s substantial business. The UK, Germany, France and Japan have 22% between them, and each has a permanent seat on the board.
By a weird arrangement permitting rich nations to speak on behalf of the poor, Canada and Italy have effective control over a further 8%. Europe, Japan, Canada and the US wield 63%. The 80 poorest countries, by contrast, have 10% between them.
These quotas no longer even reflect real financial contributions to the running of the IMF: it now obtains much of its capital from loan repayments by its vassal states. But the G7 nations still behave as if it belongs to them. They decide who runs it (the MD is always a European and his deputy an American) and how the money is spent. You begin to wonder why the developing countries bother to turn up.
In principle, this power is supposed to be balanced by the ”basic vote” – 250 shares (entitling them to $25-million worth of votes) are allocated to every member. But while the value of the rich countries’ quotas has risen since the IMF was founded in 1944, the value of the basic votes has not.
It has fallen from 11,3% of the total allocation to 2,1%. A leaked paper shows that the fund intends to democratise itself by ”at least doubling” the basic vote. That sorts it all out, then – the 80 poorest countries will be able to claim, between them, another 0,9%. Even this concession was granted only after the African members publicly opposed the fund’s proposals. Doubtless the US is currently reviewing their trading status.
All this is compounded by an internal political process that looks as if it was contrived in North Korea. There are no formal votes, just a ”consensus process” controlled by the G7. The decisions taken by each member state cannot be revealed to the public. Needless to say, the IMF insists that the states it lends to must commit themselves to ”good governance” and ”transparency”.
None of this would matter so much if it had stuck to its original mandate of stabilising the international monetary system. But after the collapse of the Bretton Woods agreement in 1971 the IMF more or less lost its mission to maintain exchange rates, and began to look for a new role.
As a paper by the law professor Daniel Bradlow shows, when it amended its articles of association in 1978 they were so loosely drafted as to grant the IMF permission to interfere in almost any aspect of a country’s governance.
It lost its influence over the economic policies of the G7 and became instead the rich world’s viceroy, controlling the poorer nations at its behest. Since then, no rich country has required its services, and few poor countries have been able to shake it off.
This casts an interesting light on the decision — to be endorsed at the IMF’s meeting in Singapore next week — to enhance the quota for the four middle-income countries. After the fund ”helped” the struggling economies of East and South-East Asia in 1997, by laying waste to them on behalf of US hedge funds and investment companies, the nations of that region decided that they would never allow themselves to fall prey to it again.
They began indemnifying themselves against the fund’s tender loving care by building up their own reserves of capital. Now, just as China and South Korea have ensured that they will never again require the IMF’s services, they have been granted more power to decide how it operates. In other words, the smaller your stake in the outcome, the greater your vote.
If the IMF’s leaders and supporters are to persuade us that it might, one day, have a legitimate role in running the world’s financial systems, they will have to do a hell of a lot better than this. — Â