Minus IMF reforms, US $1.1t bill a slap in face to world

Updated: 2014-12-15 05:12

By Chen Weihua(China Daily USA)

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The US Senate passed a $1.1 trillion spending bill late Saturday night that will avoid a partial government shutdown, but what was missing for the rest of the world was a long-awaited ratification for International Monetary Fund (IMF) 2010 Quota and Governance Reforms.

The 2010 reforms would expand IMF's resources and give emerging economies, such as China, Brazil, India, Russia, South Africa and Turkey a big say in the IMF. It would also revamp the IMF board to reduce dominance of Western Europe.

News that the IMF reforms package was not even in the legislation process this time came two days ago, prompting IMF Managing Director Christine Lagarde to issue a depressing statement.

Lagarde said the IMF's membership has been calling on and was expecting the US to approve the reforms by year end. "Adoption of the reforms remains critical to strength the Fund's credibility, legitimacy, and effective, and to ensure it has sufficient permanent resources to meet its members' needs," she said in the statement on Friday.

"I have now been informed by the US administration that the reforms are not included in the budget legislation currently before the US Congress. I have expressed my disappointment to the US authorities and hope that they continue to work toward speedy ratification,"

Minus IMF reforms, US $1.1t bill a slap in face to worldLagarde said as requested by our membership, the IMF will now proceed to discuss alternative options for advancing quota and governance reforms and ensuring that the Fund has adequate resources, starting with an Executive Board meeting in January 2015.

In Beijing, Foreign Ministry spokesman Hong Lei expressed China's deep disappointment over the US Congress action and urged the US to ratify the reforms as soon as possible.

Hong told a daily briefing on Friday that China calls on all parties to participate in the discussions actively on the plan to improve the IMF's quota and governance structure in accordance with the decision of the International Monetary and Financial Committee and the commitment made on the G20 Brisbane Leaders' Summit.

"China is willing to play a constructive role to ensure that pending the final entry into force of the 2010 reform plan, emerging markets and developing countries can enjoy a larger quota and a greater say," he said.

Some observers have interpreted the ideas to launch the BRICS bank and the Asia Infrastructure Investment Bank in the past years as a sign of emerging and developing nations expressing displeasure with the IMF and World Bank, long dominated by the US and Western Europe and no longer matching the reality of the changing global economy today.

Senior US officials have also expressed that the Congress action has inflicted huge damage on US global standing when every other country of IMF's 188 member nations have approved the IMF quota and governance reforms.

US Under Secretary of Treasury Nathan Sheets said that the US has benefited time and again from the capacity of the IMF to respond and to help stabilize. And the US has also benefits from having a leadership role in the IMF.

"And if we fail to pass these reforms I think it jeopardizes our position and jeopardizes the capacity of the Fund to do its work going forward," he told a talk hosted by the Brookings Institution on Dec 3.

Some Republican lawmakers have worried that the IMF quota and governance reforms would erode US control there, especially over its emergency cash reserve to help rescue nations in trouble.

The different views in the White House and Capitol Hill has been regarded as a reflection of the dysfunctional politics in Washington where bipartisan cooperation has been increasingly replaced by a sort of constant election mode confrontation.

A Pew Research Center survey released last Thursday showed that the American public is deeply pessimistic about the prospects for healing the nation's deep political division, and most Americans think continued partisan gridlock would wreak significant damage on the country.

About 81 percent say the US is more politically divided these days than in the past, and only 17 percent think the country will be less politically divided five years from now, according to the survey.

Eswar Prasad, a senior fellow at the Brookings and a former IMF chief in China, described the recent shifts in the US political landscape as not a good omen for IMF reforms.

To Prasad, even the delayed 2010 quota reform represents only a modest step toward changing the governance structure of the IMF to reflect shifting economic realities. "Failure to make progress even on this modest reform raises serious questions about the IMF's shaky legitimacy and influence," he said.

There is no doubt to the rest of the world that this time it is the US, or the US Congress to be more specific, that has stood against the rest of the world in improving global financial governance.