Washington, D.C. — As finance ministers and central bankers from the world’s major economies meet today in Washington, D.C., for the annual spring meetings of the International Monetary Fund and World Bank, a new column from the Center for American Progress analyzes the necessity for Congress to adopt much-needed and widely popular reforms to the International Monetary Fund, or IMF. The United States and other major economies agreed upon the reforms in 2010, and 144 countries have subsequently approved them. But the reforms are now waiting on Congressional ratification to implement them.
Although the IMF responded admirably to the 2008 global recession, it has become clear that reforms are sorely needed to modernize the institution. Governance of the IMF is outdated, with outsized voting shares allocated to small European economies such as Luxembourg and the Netherlands, while minimal votes are allocated for large emerging market economies such as China, Brazil, and India. However, as outlined in CAP’s analysis, countries such as China, Brazil, and India are willing to take on more financial responsibility in international institutions, and the United States should actively encourage this burden sharing. Financial commitments and potential borrowing limits would change to correspond with the changes in burden sharing, boosting the IMF’s overall lending capacity.
At the same time, the proposed reforms to the IMF—which Congress dropped from legislation signed into law last week in response to Russia’s military occupation in Ukraine—would leave U.S. influence in the institution undiminished. Under the proposed reforms, U.S. voting shares will change from 16.7 percent to 16.5 percent, preserving the highest number of voting shares among IMF member countries, as well as a longstanding U.S. veto over institutional changes.
“The proposed IMF reforms are a no-brainer,” said Molly Elgin-Cossart, a Senior Fellow with the National Security and International Policy team at CAP and author of the analysis. “They modernize the IMF and restore American leadership on the global stage at a time when the world desperately needs it, without additional cost for American taxpayers. These reforms are a necessary change that both Democrats and Republicans can support, and Congress should ratify them as soon as possible. ”
Beyond the benefits IMF reform would provide the global stage—such as increased lending power and increased involvement of emerging economies—the crisis in Ukraine provides an additional illustration of why IMF reforms are needed. Ukraine faces imminent economic collapse and a possible default on its debts, and while its government has pledged to undertake serious reforms to stabilize its economy, Ukraine will need help from the international community to reform its economy and stimulate growth. The IMF will assume leadership in this task, and countries will look to the United States to play a major role in building consensus for the financial and political support that Ukraine needs desperately.
Yet when the IMF and the G20 finance ministers meet this week in Washington, the United States will instead be on the defensive, explaining why it has failed to follow through on its pledge to ratify reforms already ratified in 144 other capitals. The United States’ reluctance to give emerging economies a seat at the table in existing international institutions impedes our ability to build political consensus and isolate Russia. As the United States continues to advocate for a strong, international response to Russia’s military occupation and annexation of Crimea, Congress should seize the opportunity to include IMF reforms as part of a global response to aid Ukraine.
Ukraine is only one example of why IMF reforms matter. As detailed in CAP’s analysis, the reforms are a sensible and low-cost way to improve the effectiveness and influence of the United States on the global stage, maintain our veto power over IMF decisions, improve the distribution of financial burdens in international institutions, and bolster the ability to respond to global economic crises—all without increasing the cost to taxpayers.