Trends by Martin Khor
18 September 2006
Reforms needed to IMF, World Bank
week the International Monetary Fund and the World Bank meet in Singapore
to discuss possible reforms to their voting structure. It is an attempt
of these institutions to remain relevant, as developing countries have
lost confidence in their policies and are turning to other sources of
annual meeting of the International Monetary Fund and the World Bank,
which is taking place in Singapore this week, is another opportunity
to examine the reform of these international financial institutions.
meeting comes nine years after the start of the Asian financial crisis
in July 1997. That traumatic crisis shook the faith of Asia in the IMF
and World Bank. Firstly, these institutions had promoted the kind of
financial liberalisation that contributed so much to the crisis.
the policies that the IMF in particular imposed on the countries that
had to borrow from it made the situation worse, converting what was
essentially a cash-flow and currency crisis into a full blow real-economy
recession, with economic growth going from positive 7-8% to negative
6-9 per cent.
Africa and Latin America the IMF-World Bank policies have also contributed
to long-term stagnation or recession. They include high interest rates,
open financial flows from and to the world, fiscal austerity, open trade
almost three decades of these policies, most countries failed to grow
properly and some went into long-term recession, with declines in per
IMF and the Bank insisted their policies were right but that the governments
did not implement them properly. However, the Asian crisis brought
about a sea-change in the way the world sees these institutions.
became obvious that the same policies imposed on the affected Asian
countries were wrong, and the medicine had made the patient more sick,
almost to the point of death.
most Asian countries have rejected not only the IMF policies, but vowed
never again to return to the Fund to borrow. They have built up larger
foreign currency reserves and taken steps to avoid another financial
Latin American countries have similarly reduced or eliminated their
dependence on the IMF. Argentina and Brazil have pre-paid their loans,
not wanting to have to follow advice which they believe is often wrong.
a result, the IMF has little business to do these days, and is becoming
irrelevant as a loan-maker. Many countries prefer to borrow from the
market or from other institutions.
has forced the IMF secretariat to face up to the grumbles of developing
countries that they have little say in the decisions of the organisation,
which as everyone knows is really run by a few developed countries,
especially the United States.
is because of the voting rights system, in which votes are weighted
by the share of equity that countries have in the Fund and the Bank.
The developed countries have the overwhelming share of the equity and
thus of votes.
Singapore meeting will discuss a proposal by the IMF secretariat to
alter the voting rights
allowing a few developing countries – China, South Africa, Brazil, Turkey
– to purchase more equity.
say that the countries are too few, for example the Africans as a whole
will have even less share of total equity after the proposed restructuring.
And that the dominance of the developed countries will remain.
proposal is merely aimed at pacifying the bigger developing countries
so that they will not abandon the Fund and Bank, say the critics.
Singapore meeting will decide what to do. However it is being marred
by actions of the Singapore government in preventing several NGO representatives
from entering, even though these have been accredited by the Bank and
Fund to take part in official NGO events.
of NGOs are now protesting against the actions, and the row over democracy
and transparency of the IMF and World Bank threatens to overwhelm the
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