US Treasury Secretary Janet Yellen showed little willingness to embrace reforms at the International Monetary Fund that would give China and other developing countries significantly more say in how the world’s go-to emergency lender is run.
The Biden administration would “support a quota formula that better reflects the global economy, but change on this can only happen within an agreed-on framework based on shared principles,” Yellen said in the text of remarks she delivered Tuesday as global finance officials gathered in Marrakesh, Morocco.
The outdated distribution of IMF quotas — which represent a country’s share of the institution’s resources and align closely with voting rights — is expected to be a source of major debate here this week at the annual gathering of the World Bank and IMF.
Global South
Countries like China, Brazil and India — whose economies have grown significantly faster than those of developed nations - have long clamored for a re-division of quotas to reflect their growing heft. China, for example, accounts for about 18% of global economic output, but holds just a 6% share at the IMF.
Tatiana Rosito, a senior official in Brazil’s Finance Ministry told Bloomberg News last week the lack of reform was pushing the so-called BRICS nations to fund development through institutions like the Beijing-based Asian Infrastructure Investment Bank.
The IMF’s Managing Director, Kristalina Georgieva, appeared to signal her support for reforms in an interview published in the Financial Times earlier this month.
“There is a need to constantly change to reflect how the world economy is changing,” she said.
Pro-Rata
In her remarks, Yellen reiterated US calls for an “equiproportional” increase of IMF quotas, highlighting Washington’s unwillingness to consider a reallocation of voting shares at this moment. In other words, the US proposes that all members should contribute more, but retaining the division of power that’s existed in the IMF since 2016.
Yellen’s remark on quota reform being dependent on “shared principles” among IMF members could be interpreted as a reference to China, which the US has criticized for, among other things, not participating readily in debt restructuring for low-income countries and for being non-transparent in foreign-exchange management.
In order to improve representation at the Fund by emerging and low-income economies, Yellen reiterated the US proposal to add another deputy managing director to represent these nations. She said the US was also engaging with peers on the potential of adding another Executive Board chair representing sub-Saharan Africa.
Development Finance
Yellen also spoke of US ambitions for the World Bank, where she has pushed for big changes and partly succeeded. At her urging in the last year the development lender has taken steps to stretch its balance sheet.
In her speech Yellen tried to rally support for further increasing resources for concessional loans —those with terms more favorable than markets would provide — to confront global threats like climate change and pandemics.
She noted the Biden administration has pledged an additional $2.25 billion that could “unlock” up to $27 billion in fresh lending. The US has been hoping other advanced economies will make similar pledges to increase the World Bank’s firepower, though few have so far made concrete promises.
“The G20 has committed to mobilizing more resources, and other countries are making announcements on how they will boost capacity as well,” Yellen told an audience at the Mohammed VI Polytechnic University in Ben Guerir, north of Marrakech.
Other countries, however, will also be watching the US Congress closely to see if lawmakers will approve the funding promised by President Joe Biden and Yellen. Ongoing partisan squabbles in the US capital are threatening not only support for the World Bank but aid for Ukraine.
Yellen also called on all the regional development banks to get moving on incorporating some callable capital — money that members have pledged to produce in an emergency, but which has never been tapped — in their capital adequacy frameworks, a step that could boost their lending power.
--With assistance from Eric Martin.
