The drums are beating for reforming the International Monetary Fund. Progress was made at the April 22 meeting of the IMF’s ministerial-level policy committee, and even greater progress was promised for the IMF annual meeting in September.
But don’t hold your breath. The time is not ripe for one overriding reason: The United States is not ready to act and will not be ready until 2009. The United States has been the major shareholder in both the IMF and the World Bank since they were founded in 1945. It is also the only country with a voting share large enough to block any fundamental change.
Two questions highlight the problem: Is it possible to reform the Fund without the support of the United States? And, is it possible for the Bush administration to propose a set of reforms acceptable to a great majority of the IMF’s member countries and the U.S. Congress? The answer to both questions is no, which suggests a certain lack of political realism in the current flurry of interest in IMF reform.
A third question is also critical. Can the IMF be reformed without reforming the World Bank at the same time? Here the answer is less obvious. Fixing both together offers more opportunities for political tradeoffs. But trying to do both at once may simply be too ambitious. A major overhaul of the IMF was enacted in the 1970s without touching the Bank. Now again the balance of arguments favors starting with IMF reform and putting off Bank reform.
The case for reforming the Fund has been made powerfully in recent weeks by, among others, Bank of England Gov. Mervyn King, Bank of Canada Gov. David Dodge, Institute for International Economics Senior Fellow Ted Truman. Curiously, they seem to overlook the fact that since World War II the U.S. government has been the driving force behind all major reforms of this kind. The world has changed a lot in 60 years, but not enough to make IMF reform feasible now without full U.S. support. And the U.S. government is not about to support a reform plan proposed by another country or by any imaginable group of international wise men.
So the world is stuck because the U.S. government is not in a position to put forward a credible reform proposal now and probably will not be until the next administration arrives in Washington. President Bush’s approval rating is on the floor. Treasury Secretary John Snow long ago used up any political capital he ever had domestically or internationally.
Republican control of both houses of Congress is likely to be sharply eroded, if not lost, in the November elections. The country at large is sharply divided on most domestic and international issues and has not even begun to focus on IMF or World Bank reform.
The best chance for successful reform of the IMF in the near term is to start a vigorous debate within the United States in the context of the presidential election in November 2008, with the goal of having an IMF reform plank in the platform of each major party that can be acted upon in the first year of the next administration. To be credible these planks must contemplate bold changes, such as giving up the exclusive U.S. veto power. Actively seeking the views of emerging powers such as China and India on the future role of the IMF will also be necessary to ensure that the eventual American proposal is well received.
An IMF that can identify weaknesses in the international financial system and generate effective pressure on member countries to address them, can make a huge contribution to global well-being. No country today has a bigger stake than the United States in making the reforms necessary for the Fund to perform this role. No other country can provide the global leadership to push through a reform package.
Let’s begin working now to create the political space for the next president to propose an IMF reform plan that will be good not only for 300 million Americans, but also for the other 6 billion co-inhabitants of this world. Success here is one of the steps by the United States to restore confidence at home and respect abroad.