From 12-14 October, world leaders converged on Tokyo for the IMF Annual Meetings. This year’s gathering was marked by pressing issues: the European debt crisis, a slow-down in global growth and IMF governance reform. Governance reform consists of two parts. First, the 2010 Quota and Governance Reform must be implemented. This reform involves changes to the rules by which Executive Directors are elected, a doubling of members’ quotas, and a reduction of the current number of advanced European members in the IMF’s 24-member Executive Board by two seats. Second, members discussed the IMF quota formula, which is due for review in January 2013. This formula determines relative financial shares and voting power in the IMF. Both of these reforms seek to align the voice of IMF members with their positions in the global economy. In particular, emerging and developing economies are growing fast and playing a more important role in the global economy, particularly since the crisis. It is logical that the greater economic importance of these countries will find its way into the governance of international organizations like the IMF, and that the Netherlands is working with other countries to assist this process.
The decision by the Netherlands, its constituency partners, Belgium and Luxembourg to join forces and create a new Constituency as of 1 November 2012 frees up a full Board seat for emerging and developing countries. The initiative lays the groundwork for sustainable representation at the IMF of a diverse yet tightly knit constituency. And as the Fund’s role in the global economy and crisis management is becoming ever more important, the new Constituency can also offer strong support to the Fund’s work and mandate – for at least three reasons.
First, this close cooperation between a diverse group economies, both advanced and emerging, sets an example for European and international cooperation in the IMF. The new Constituency will comprise Armenia, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Georgia, Israel, Luxembourg, the Republic of Macedonia, Moldova, Montenegro, the Netherlands, Romania, and Ukraine. Fruitful cooperation in IMF and World Bank policy formation will continue. Central banks and governments will continue to cooperate on issues of technical assistance. After the EU accession of Croatia, the Constituency will comprise 7, or a full quarter of all EU members, alongside a number of (potential) EU candidate countries and close European neighbors. The new constituency is the 5th largest chair and the largest multi-country constituency in the Executive Board in terms of quota (see graph).
Second, the Constituency countries have generally open economies and with this a strong stake in global stability. Key purposes of the IMF, according to Article I of the Articles of Agreement, are “to facilitate the expansion and balanced growth of international trade” and “assist in the establishment of a multilateral system of payments”. Moreover, given the work of the IMF on cross-border capital flows and financial sector issues, it is more important than ever that countries with large financial sectors are involved in discussions. On the basis of the most widely accepted measure of financial openness, investment income, the Netherlands-Belgium Constituency is the 3rd largest player in the IMF Board (see graph). As the IMF strengthens its surveillance of external positions and the financial sector, the new Constituency firmly represents the important perspective of open economies.
