Saturday, December 13, 2014

BRICSPost: US Isolated, BRICS to get Greater Voting Power at IMF

It is always interesting to see how different sides view things when you have a debate going on. We have covered the failure of the US Congress to approve the 2010 IMF reforms all year long. We have run articles from both western and eastern media sources to get the broader picture of how each side sees this issue. Today the BRICSPost runs this article proclaiming "BRICS to get Greater Voting Power at IMF". But not so fast my friend. Is this Headline a little misleading? Let's look at it.

This BRICSPost article quotes IMF Director Christine Lagarde as follows:

"Lagarde said the IMF is disappointed with the US inaction to ratify the governance and quota reforms and will now move forward without Washington."
“The IMF’s membership has been calling on and was expecting the United States to approve the IMF’s 2010 Quota and Governance Reforms by year-end. Adoption of the reforms remains critical to strengthen the Fund’s credibility, legitimacy, and effectiveness, and to ensure it has sufficient permanent resources to meet its members’needs,” Lagarde said in a statement."
“I have now been informed by the U.S. Administration that the reforms are not included in the budget legislation currently before the U.S. Congress. I have expressed my disappointment to the U.S authorities and hope that they continue to work toward speedy ratification,” she said."
As requested by our membership, we will now proceed to discuss alternative options for advancing quota and governance reforms and ensuring that the Fund has adequate resources, starting with an Executive Board meeting in January 2015,” she added."
My added comments: It may be a little early to proclaim that the BRICS will "get greater voting power at the IMF". It is clear from Ms. Lagarde's statement that the IMF now accepts that the US Congress will not approve the reforms by year end. She does also add that the IMF "will move forward without Washington" and will "now proceed to discuss alternative options for advancing quota and governance reforms" in January 2015.
However, this is not the same thing as assuring everyone that the BRICS will get greater voting power at the IMF. It seems obvious that the IMF is going to try and figure out some way to get what it wants without US approval. But that does not guarantee it will happen. An attempt to ignore and bypass the US Congress in the current political environment is as likely to cause a negative blowback to the IMF as it is to succeed. And Ms. Lagarde has issued many statements in the past that she was confident the US would approve the 2010 reforms that turned out to be wrong.
In a recent IMF press conference on Dec. 11th, an IMF spokesman was asked by a reporter directly what the "alternative options or Plan B" might be and how the IMF could implement them without getting US approval. The spokesman did not answer the question and only repeated what Ms. Lagarde said. Which is that they will start having meetings to discuss it in January. We will have a more in depth story on that on press conference on Wednesday of next week (Dec. 17th).
The IMF may have something up its sleeve that will allow the BRICS to get more voting power, but right now we cannot make the statement that they are certain to get more voting power. It is very likely that the IMF will want to include the Yuan in the SDR basket, but that does not mean the BRICS get more voting power at the IMF. The IMF recently made an interesting comment on that as well. They said "its too early to tell if the inclusion of the Yuan in the SDR basket can be approved with a 70% vote or an 85% vote. They did not explain how it could be "too early" to know this and how it could possibly be an unknown since it would seem that either an 85% vote is required or it isn't according to IMF rules. How does the passage of time change the rules? We will have a blog post on this next week as well.
This story is turning into more of a mystery than anything else right now. The IMF plans to do something, but what that may be is very unclear. Even more unclear is if they really can just bypass the US Congress. Also unclear is what the Congress will do in reply if they try it. Stay tuned in 2015.

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