The International Monetary Fund may not live to see its anniversary
10-11 On April 2014, the regular meeting of finance ministers and heads of central banks of the G20 countries (financial twenty) took place in Washington. The key issue was the reform of the International Monetary Fund (IMF). International Monetary Fund: a long and difficult life
2014 marks the 70 years since the Bretton Woods Conference, where the basic parameters of the post-war world monetary and financial system were determined and a decision was made to create the International Monetary Fund. The most important elements of this system are: fixed exchange rates of the currency of the participating countries, pegging of all currencies to gold (gold parity), free exchange of the dollar for gold by the US Treasury to the monetary authorities of other countries. The main function of the Fund was to provide loans to member countries in the event that the balance of payments becomes scarce and there is a threat of deviation of the currency exchange rate of the monetary unit from the fixed value, as well as the gold parity.
The IMF experienced a serious crisis in the 1970s, when the Bretton Woods system collapsed. It all started on 15 August 1971, when US President R. Nixon announced that the US Treasury would stop exchanging dollars for gold. The final dismantling of this system took place in 1976, when the Jamaica International Conference was held, where the IMF Charter was amended. Henceforth, floating exchange rates were legalized, and the peg of the dollar and other currencies to gold was canceled. True, it was not clear what the IMF would do in the new conditions. After all, now it was not necessary to maintain balance of payments with the help of loans from the Fund. There were even offers to close the Fund. However, in the 1980-s, the IMF found its niche. It became the main instrument for implementing the so-called Washington Consensus - a set of principles of financial globalization and economic liberalization. The fund began to provide loans in exchange for political and social concessions to the recipient countries of the loans (privatization of state property, liberalization of capital movements, refusal of state intervention in the economy, etc.). Currently, the IMF unites 188 states, and 2500 people from 133 countries work in it.
Foundation: the need for reform
For many decades, the “controlling stake” in the IMF belonged to the United States. The number of votes of each participating country is determined by its share in the capital. To block certain decisions at meetings of the Fund, 15% votes are needed. In the USA, the number of votes has always substantially exceeded this threshold value. And for pushing through the necessary decisions, the United States, without much difficulty, attracted Britain and France, which after the war occupied second and third places in shares in the Fund’s capital. Periodically, the shares of countries in capital and votes were adjusted to reflect changes in the positions of countries in the global economy. Sometimes decisions were made to increase the Fund’s capital, but such adjustments did not prevent the United States from retaining the “controlling stake” and using the Fund as an instrument of its global policy.
The global financial crisis of 2007-2009 became a test of the ability of the Fund to solve complex problems related to maintaining the stability of the international monetary system. The fund, to put it mildly, was not up to par. First, the crisis revealed a lack of equity capital of the Fund. Second, the countries of the periphery of world capitalism were left out during the crisis. And this was largely due to the fact that such countries did not have enough votes to make the decisions they needed. Since that time, the largest of those countries that have classified themselves as “deprived” have begun to actively use the mechanism of the G-20 meetings in order to push the process of reforming the IMF. The main engine of this process became the BRICS countries.
A special role was played by the G20 meeting in Seoul in 2010. There, an agreement was reached on the next, fourteenth revision of the quotas of countries in the Fund’s capital. But besides this, two strategic decisions were taken: on the development of a new, more equitable formula for determining quotas; to increase the Fund’s capital by half - from 238,4 billion SDR to 476,8 billion SDR (Special Drawing Rights - special drawing rights; this is a non-cash monetary unit issued by the IMF). It was assumed that in 2012, new quotas based on the 14 th adjustment would be put into effect, and by January 2014, a new formula would be developed. By January 2014, the 15 th quota revision was planned based on a new formula.
As a result of the 14 revision of quotas, more than 6% of quotas should have been redistributed from developed countries to developing countries. In the event that the 14 revision comes into force, China will become the third largest quota by the state - a member of the IMF, and Brazil, India, China and Russia will be among the 10 largest shareholders of the fund.
US blocking the reform of the Fund
Four years have passed since the decision was made in Seoul, but his decisions remain on paper. The process blocks the main "shareholder" of the IMF - the United States. With the SDR quota of 17,69% and 16,75% of votes, which gives them veto power over key decisions of the Fund that require a majority of 85% of votes, the United States has not yet ratified the revision of quotas. Washington fears that the IMF may soon become uncontrollable to it. After all, the 15 revision of quotas is not far off, and it should be calculated on the basis of a new formula, which most likely will more fully take into account the interests of the countries of the periphery of world capitalism. At the same time, the United States, in the event of ratification, will have to contribute about $ 60 billion to replenish IMF capital.
The previous financial twenty meeting was held in Sydney in February 2014. Even then, it became clear to everyone that the IMF had no money. Russian Finance Minister A. Siluanov announced this publicly. Then the website of the Ministry of Finance of Russia recorded: "... at the moment, the IMF has practically exhausted its own resources, and the existing programs of the fund are actually funded by agreements on borrowing." This means that the Fund provides loans not at the expense of its own capital, but at the expense of on-lending of those resources that it manages to obtain from individual member countries. But such resources can be provided to the Fund under very specific conditions (for example, for issuing loans to a specific country for specific purposes). And refinancing means that interest on loans for final recipients will be significantly higher than those that the IMF charges for lending at the expense of equity. In Sydney, the question of what kind of assistance the IMF could provide to Ukraine was discussed. According to the majority of the meeting participants - no. The latest negotiations on the possible provision by the International Monetary Fund of a multi-billion dollar loan to the current regime in Kiev is just a spectacle. Both sides of the negotiations are almost bankrupt.
In Sydney, the G20 has spent considerable time convincing the United States to resolve the issue of ratifying 2010 decisions of the year. The meeting’s communiqué was recorded: “The ratification of the 2010 reform of the year remains our top priority, and we urge the American side to do so before our next meeting in April.” Alas, these calls by Washington were not heard.
The IMF is doomed. What's next?
By inaction on the reform of the IMF, the United States discredits itself in the first place. Secondarily, the Foundation. In the third turn - the Big Twenty. The reputation of the Fund is falling particularly fast against the backdrop of the fact that in recent years China has been providing loans to third-world countries that are comparable to the amounts of loans and loans from the IMF and the IBRD. At the same time, Beijing, unlike the IMF, does not expose political conditions in the spirit of the Washington Consensus.
According to the Rand Corporation, in 2001, the entire volume of aid from China promised to foreign partners amounted to 1,7 billion dollars. A decade later, this figure reached 190 billion dollars. In just 10 years, the amount of aid promised amounted to about 800 billions of dollars provided - in excess of 70 billions. The difference is explained by the fact that the preparation of projects in which the Chinese participate takes an average of six years. Among recipient regions, Latin America ranks first, followed by Africa, the Middle East, South Asia and Eastern Europe. Pakistan is the largest beneficiary (89 billion dollars). Among the goals for which money is allocated, the extraction and processing of natural resources (42 percent) dominate, followed by infrastructure projects (40 percent) and humanitarian aid (18 percent). All assistance is divided into concession loans, interest-free loans and direct non-repayable grants. The first category is served by state-owned banks, the other two pass directly through the PRC budget. The vast majority of recipients of Chinese aid are not able to borrow on the open market. At the same time, the average rate on concession loans is only 2,3 per cent per annum, which is significantly lower than that of the IMF stabilization loans.
If the decisions of G20 and the IMF have not been implemented for four years, this is a serious blow to the reputation of these international organizations. However, this is not the first time the United States is blocking the reform of the Fund. A prime example: the decision on the 13 th quota adjustment adopted by the Foundation in the 2001 year. The United States pulled with their ratification to 2009 year. It was only in the midst of the financial crisis that Congress approved them. Most of the countries in Western Europe, although they ratified the 2010 adjustment of the year, are secretly pleased with the inaction of Washington, since the entry into force of the 14 adjustment would reduce their share in the total votes.
Many US congressmen believe that they have more important things to do than a return to the issue of reforming the IMF. According to their statement, the next time this question will be heard in Congress only in November 2014. However, for many IMF member countries, patience seems to be running out. Especially from China, which has repeatedly provided its funds to the Fund on the basis of agreements on borrowing. There are not many ways out of the impasse.
Some believe that a kind of revolution may soon happen in the IMF: the decision to reform the Fund will have to be resolved without US participation ... But formally, the Fund’s charter in the form it has after the JNAM 1976 conference does not allow it. In reality, such a revolution would not mean reforming the IMF, but creating a new organization on its basis with a new charter - and without US participation.
Another option is possible. It is already well developed and has every chance of success. We are talking about the currency pool (pool of foreign exchange reserves) and the Development Bank of the BRICS countries. The principal decision on the creation of these organizations was made at a meeting of the BRICS countries on the eve of the G20 summit in St. Petersburg in September of the 2013 year. The currency pool and the BRICS Development Bank will have capitalization of $ 100 billion each. The start of their work is planned for 2015 year. Currently, issues such as capital replenishment schedules, shares (quotas) of individual countries, the location of the headquarters of both organizations are being addressed. These international organizations of the BRICS countries could become points of crystallization, attracting other countries to themselves. Who knows: maybe over time they could become financial institutions that could replace the International Monetary Fund and the World Bank?
As we see, in both ways out of the current impasse, the International Monetary Fund has no place in the new global financial order.
The members of the financial twenty are determined
Part of the communiqué, published on the results of the G-20 meeting in Washington 10-11 April 2014, is devoted to reforming the IMF. “We are deeply disappointed with the continuing lack of progress on IMF quota reform, which was decided in 2010,” the document says. “We reaffirm the importance of the IMF as an institution based on quotas of the participating countries. Implementation of quota reform remains our priority, and we demand that the American side ratify this reform at the earliest opportunity, ”the statement says. “If quota reform is not ratified by the end of the year, we urge the IMF to develop options for the next steps, and we will work with the IMFC (International Monetary Finance Committee, the International Monetary Fund structure - V.К.) and discuss these options,” final document of the financial G20.
The Finance Minister of Russia A. Siluanov commented on the sidelines of the Washington Summit in Washington: “It was decided that if this year the amendments to the IMF charter were not ratified, then other alternative mechanisms would be proposed at the end of this year that would take into account an increase in the share of emerging markets in the global economy ", - explained the Minister. He recalled that today the IMF is working on the principles of using borrowed funds, where the opinions of countries that have increased their share in the world economy are not fully taken into account. “Other measures will be proposed to take into account the interests of countries in matters of the foundation’s policy,” he concluded. Apparently, the reform of the IMF can occur according to the scenario of a “quiet revolution”.
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