The IMF's Madisonian Future
Viewing today’s international organizations in a negative light is increasingly commonplace. We see this in growing concerns about the value of the G20 and the United Nations. We also see this in fears that our world is entering a “Global Zero” phase in which no country has both the means and the motive to order international affairs. But we are not destined to live a world in which the international organizations that previously steered the world economy become inconsequential overnight. As global power diffuses, the future of the International Monetary Fund may be based less on dystopia and more on the American founding. The diffusion of global power will reshape many international organizations, as countries with rising influence obtain voting privileges commensurate with their new levels of power. While this may make the IMF more unwieldy in the future, it will bring the age of predominant US influence over the Fund to a close.
This argument stems from one trend and two findings. First, it is almost universally accepted that the global distribution of power will continue to shift away from the US and Europe and toward emerging markets in the coming years. The emergence of the BRICS countries was just the beginning. A report commissioned by the US National Intelligence Council suggests that China will surpass the US in terms of economic size before 2030, though it will still trail the US in terms of per capita incomes. A middle tier of emerging markets known as the Goldman Sachs “Next Eleven” may also be larger than the EU by 2030.
The second piece in this argument comes from history. Many international organizations are created based on the premise that with disparity in contributions comes disparity in influence. For the IMF, weighted voting was the cost of getting larger economies to put additional resources into the Fund in the first place. Thus, the United States currently controls 16.7% of the votes in the Fund, and Japan, Germany, France, and the United Kingdom each control between 4.8-6% of the total votes in the Fund.
With the advent of the global economic crisis, this deal has come under serious pressure from the BRICS countries. The BRICS countries’ posture is not hard to understand. They seek additional votes at the Fund commensurate with their growing international influence. Despite a public pledge to implement a package of voting reforms at the Fund that was reiterated at the recent G20 summit, the United States has yet to deliver. Japan, Germany, France, and the United Kingdom have all done their part. Thus, we have a flattening of the global power hierarchy coupled with demands by rising powers for more voice in international organizations.
This raises the question of what the US actually gets in exchange for this agenda-setting power. Here, research from political scientists and economists provides a ready answer: US influence shapes the day-to-day operations of the IMF. Countries that receive large amounts of US foreign aid are, controlling for explanatory factors, more likely to get loans from the IMF, and those same countries are less likely to have their loan programs suspended for non-compliance. Because the US is able to use its weight in the Fund to reward its friends and punish its foes, it is no accident that Washington continues to lag on IMF reform.
But recent events suggest that the era of US influence over the Fund may be coming to a close. There are quite obviously limits to how hard Washington can push the IMF, because other member countries will be increasingly positioned to push back. A paper completed in December by the IMF’s own Independent Evaluation Office found that the Fund began targeting the holdings of international reserves by some countries as a matter in its bilateral surveillance as a direct result of pressure from the US government. Unable to pressure China to alter its exchange rate through bilateral means, the US pressured the Fund to make the accumulation of foreign exchange reserves a policy concern, though the economic rationale for this policy was scant and uncompelling. Just this week, the Independent Evaluation Office also released the results of a survey of IMF mission chiefs, which revealed that many felt the IMF’s recent activities in surveillance, including a more narrow focus on exchange rates, compromised its effectiveness. Too much political manipulation, especially in a transparent age, can be a bad thing.
Exclusive explainers, thematic deep dives, interviews with world leaders, and our Year Ahead magazine. Choose an On Point experience that’s right for you.
Given this, what can we say about the future of the IMF? The problems that necessitated its creation are not going away. As long as a compromise is reached on voting rules, it will increasingly operate on the basis of checks and balances. States with increasingly equal power and diverse interests will have to form coalitions to get things done. This will give these powers a strong incentive to moderate their behavior, because they will be unable to manipulate the Fund to pursue their own narrow aims. The IMF will look a great deal more like the Security Council, in which hard bargaining is needed to carry the day, and sometimes that might not even be enough. This might produce bickering and deadlock, but in a world in which the US is going to have to share power with other countries, the days of the Fund being an extension of American foreign policy will come to an end.