Wednesday, January 28, 2015

News: Another "Deadline" passes with no IMF reforms in sight

This is a story we have followed closely for nearly a year now. In December IMF Director Christine Lagarde said that since the US Congress did not pass the 2010 reforms, the IMF would meet in January to look at "alternative options". We noted however that in her recent speech to the Council on Foreign Relations, she had a different tone to her comments. It sounded less like much would happen any time soon. 

Sure enough, today the IMF issues this press release that the new "deadline" appears to be in June 2015. I suspect the BRICS/China will not be amused. Below are some quotes from this IMF update.

The Executive Board of the International Monetary Fund (IMF) adopted on January 27, 2015, a report and proposed resolution to the Board of Governors—the IMF’s highest decision-making body—on the 2010 Reforms and the Fifteenth General Review of Quotas.
In its Report, the Executive Board notes that it has so far delayed commencement of its work on the Fifteenth Review in order to facilitate the implementation of quota and governance reforms agreed in 2010 (the “2010 Reforms”). As a result, it has not completed its work in accordance with the timetable set forth in earlier Board of Governors resolutions (see below). The Executive Board also reiterates its agreement that achieving broad consensus on a new quota formula would best be done in the context of the Fifteenth Review, and that the discussions on this issue would be integrated and move in parallel with the discussion on the Fifteenth Review.
Against this background, the Executive Board proposes that the Board of Governors adopt a Resolution expressing deep regret that the Fourteenth Review quota increases and the Board Reform Amendment have not become effective, and that the Fifteenth Review has not been completed. The proposed resolution also emphasizes the importance and urgency of the 2010 Reforms for the Fund’s credibility, legitimacy, and effectiveness, and reiterates the commitment to their earliest possible implementation, while urging the remaining members who have not yet accepted the Fourteenth Review quota increases and the Board Reform Amendment to do so without further delay.
The proposed resolution calls for the completion of the Fifteenth Review by December 15, 2015, in line with the timetable mandated under the Articles of Agreement. It also calls on the Executive Board to work expeditiously and to complete its work as soon as possible on interim steps in the key areas covered by the 2010 Reforms, and thus to enable the Board of Governors to reach agreement on steps that represent meaningful progress towards the objectives of the 2010 Reforms by June 30, 2015. The proposed resolution stresses that such interim steps should not in any way be seen as a substitute for the 2010 Reforms, which remain the highest priority.
My added comments:
This sounds pretty much like a white flag of surrender for now after the bold statement in December.  For sure, no showdown with the US Congress over the 2010 reforms is in the works. Now we wait until June to see what "interim steps in the key areas covered by the 2010 reforms" may be. And what "meaningful progress towards the objectives of the 2010 reforms" means. So far, it just means when a deadline passes nothing happens and another deadline is set. China Daily is noticing that too. Less than a week ago an article in China Daily said this:
"The failure to implement the reform plan has seriously affected public confidence in the IMF, making its representation, legitimacy and relevance questionable in the eyes of the international community. Therefore, it is imperative that the IMF rapidly advance the reform plan."
"The international community will closely follow the alternative reform options that the IMF comes up with later this month."

Why is this issue important? - The theory here is that this issue is critical to any plan for the IMF to become like a "global central bank" in the next global financial crisis. If the IMF cannot gets it lending capacity increased even this relatively smaller amount, it reduces the chances of it becoming seen as the "lender of last resort" on a global scale some day. With its prestige also on the line in the Ukraine, the IMF has a lot on its plate right now. If things go bad there, it seems doubtful that the IMF's global influence will be enhanced this year.
Of course, things can always change. If there is another huge crisis as many are predicting, perhaps that will change the picture. For now though, the IMF seems more in retreat than on the rise. We'll continue to follow it here to see how it turns out.
Tomorrow we will run a new article on the prospects for the Chinese Yuan to be added to the SDR currency basket later this year. This news release today will probably ramp up more pressure on the IMF to get that done.

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