This year's Spring Meeting event takes place in Washington D.C. on 18 and 19 April. Representatives of almost all countries come together to discuss the state of affairs of the global economy.
The IMF as an organisation is also a theme in the meeting. The members will discuss the IMF's required volume of assets and the distribution of voting power. As early as October 2010 it was decided to enhance the IMF's firing power by doubling the quotas contributed by the members, which would then amount to approximately EUR 620 billion. The aim of this measure was twofold. Firstly, it had to ensure that the IMF remains capable of serving as a safety net for countries in financial troubles, as some of its recent programmes appear to be more extensive than before. Secondly, since countries' voting power within the IMF is based on the size of their contributions, the quota increase was to be used to give emerging economies more voting power in the IMF, by raising the quotas of these economies to a relatively greater degree than those of other economies.
The Dutch contribution would increase from EUR 6.6 billion to EUR 11.2 billion, giving the Netherlands a share of approximately 1.8 per cent of the IMF's total assets. The share of an emerging economy such as China would grow from 4 per cent to 6.4 percent, making the country the third largest member – whereas currently it is number six on the list.
Voting power shift still not implemented
Despite all good intentions, the voting power shift that was agreed in 2010 has still not been implemented. It is blocked by the IMF's largest member, the United States. As long as the U.S. Congress has not approved the voting reforms, the IMF cannot be reformed since the United States effectively has the power of veto due to its large share of voting power.
It is the dominant position of the United States – as well as that of other developed countries – that is annoying the developing economies including the BRICS countries Brazil, Russia, India, China and South Africa. In their opinion, the current distribution of votes in the IMF and the World Bank is not representative of the economic power relations. After all, over the past decade the BRICS countries have contributed about one-third to global economic growth, while their share in the IMF and the World Bank hardly increased.
Their discontent was one of the reasons to announce the establishment of the Contingent Reserve Arrangement and the BRICS Bank in 2014, as a counterpart to the Bretton Woods institutions. These initiatives have not yet become operational, however.
Establishment of the AIIB
This year the Asian countries, led by China, agreed on setting up the Asian Infrastructure Investment Bank (AIBB) to boost infrastructural investment in Asia. Almost all Asian countries have opted for membership, and a number of Western countries – including the Netherlands – have expressed their support for the initiative.
The AIIB operates partly in the same area as the Asian Development Bank, established in 1966. Since the market for infrastructural investment on the Asian continent is large enough, both parties have ample room to operate and could even reinforce one another. However, the establishment of the AIBB is a clear political signal that the emerging economies of Asia are demanding more control over economic policy on their own continent.
In the meantime, the implementation of the reforms agreed in 2010 continues to have the highest priority at the IMF. The members have agreed to come up with interim solutions by mid-2015 to overcome the impasse with the U.S. Congress and give the emerging economies their rightful share of voting power. Although the IMF with its global objectives and membership base is essentially irreplaceable, the developments elsewhere in the world clearly show how important it is that shifting power relations are properly reflected in the institutional organisation of international financial institutions.
The Netherlands and Belgium have taken a first step in the right direction by opting for a joint seat on the IMF's Board of Executive Directors instead of two separate seats, to make room for an Executive Director from one of the emerging economies. This is one of the very few reform components from 2010 that have been implemented so far. At the upcoming Spring Meeting the next steps should now be taken to realise the voting power shift. Only by giving all members representative voting power will the IMF be able to maintain its legitimacy in a fast-changing world.