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Democratizing Global Economic Governance: The Time is Now

One of the challenges faced by the Obama Administration has been to reconcile existing international organizations with shifts in global power. Growth in emerging markets and the slow resolution of the European debt crisis present different problems but suggest a unique linkage between them. The White House can overhaul global economic governance by supporting the demands of emerging markets for reforms in the IMF, provided that countries work more transparently and collaboratively. This bargain will strengthen the Fund in dealing with European governments and further ensure that it will continue to provide global public goods long into the future.

The IMF projects that the growth rates of Brazil, Russia, India, China, and South Africa between now and 2017 will be effectively double that of the United States, France, and Germany. The National Intelligence Council’s Global Trends 2030 report notes that China will contribute about a third of global economic growth by 2025, which will be more than any other country. These rising powers have called for reforming the international economic organizations so that the distribution of power within them better reflects reality. These reforms include rewriting the rules to give emerging markets more voting power (because votes in these organizations are tied to the size of a state’s economy), and also revising the selection process for leaders of the Fund and the Bank (so that the process is based on merit rather than great power preferences). The G-20, for its part, has publicly endorsed both ideas at the 2009 London Summit. The formal amendment to the Fund’s Articles of Agreements that supports this change in voting rules was created in 2010.

This high-minded rhetoric, however, has not been met with results. IMF voting reforms require congressional approval, which has yet to occur in the US. Barring an agreement, emerging markets will remain underrepresented. Though the recent appointments of Christine Lagarde and Jim Kim both stemmed from competitive processes, the ‘gentleman’s agreement’ between the US and Europe to split control of the IMF and World Bank shows no signs of coming to a close.

In the coming year, the US-European watertreading over reforming the international financial institutions will face a serious test. A warning sign came last March with the fourth annual BRICS Summit. The closing statement expressed the members’ concerns over the slow pace of governance reforms of the IFIs. The only reason this wasn’t an issue at the IMF/World Bank meeting in October was that the Chinese boycotted this meeting because of their dispute with Japan. With Russia taking over the revolving chair of the G20 this coming year, governance of the international economic organizations is certain to be a top priority.