David Marsh: IMF overhaul is in U.S. interest
David Marsh, Special for USA
TODAY, April 16, 2014
Developing-country economies may be
smoldering and about to go up in flames — but the inhabitants of Congress, like
Emperor Nero in Ancient Rome, are still fiddling away merrily, impervious to the
world outside.
An impasse in Congress over extra powers and new money for the
International Monetary Fund, the 70-year-old institution at the center of world
finance, is endangering the stability of the global economy at an ill-starred
time. During the annual spring meeting of the IMF and World Bank amid the cherry
blossoms of Washington this past weekend, I sensed a palpable bitterness and
frustration about American intransigence among delegates from developing and
developed countries alike.
Senior policymakers repeatedly told me that U.S. obstructionism is
depriving the IMF of funding needed to ward off serious financial problems in
key emerging-market countries, which could have serious repercussions on the
U.S. as well as other parts of the world. All this is coinciding, I was told,
with deep-seated tectonic shifts in the world economic balance of
power.
States such as Brazil, China, India, Indonesia, Russia and Turkey,
outside the industrialized countries that used to run the international economy,
now wield greater clout. One of the most influential attendees, deceptively
softly-spoken Tharman Shanmugaratnam, the Singapore finance minister and deputy
prime minister, said that, as financial and economic power moved away from the
West, the U.S. risked suffering "disruptive change" in the next 10 years unless
it accommodated developing countries' requests for more say in running world
financial institutions.
In some cases, these are exactly the countries that may face financing
problems caused by withdrawals of hot money flows as global capital washes back
to the U.S. in the wake of withdrawal of monetary stimulus by the Federal
Reserve. The more powerful countries among the fast-emerging developing nations
have, thanks to globalization, made great strides in economic growth, living
standards and stocks of monetary reserves. But, simultaneously, because of the
cross-border nature of capital flows, and their openness to adverse swings in
currency movements, officials say they are also the most vulnerable.
In addition, these countries express irritation about what they see as
the head-in the-sand approach of the world's biggest economy, the U.S. The large
developing economies, led by China, India and Brazil, helped inject extra
dynamism into the world economy after the financial crisis in 2008-09, helping
the industrialized world (led by the U.S.) to recover.
Now that the world economy is gradually on the mend, and the Federal
Reserve is gradually tightening credit again, these countries argue that the
richer western nations need to pay attention to
That's why other countries are angry about Congress' failure to ratify a
2010 agreement among IMF members that would overhaul the fund. The changes
would: double the IMF's quota — in effect, its equity capital — to $720 billion;
shift six percentage points of total quota to emerging markets; and move two of
the 24 IMF directorships from European to developing countries.
Some Republicans who oppose the agreement question the IMF's value to
U.S. taxpayers and argue that ratification could undermine U.S. authority over
IMF spending.
U.S. obfuscation over the IMF's resources could leave the world's
foremost financial police officer perilously short of funds at a time when
heavyweight countries such as Brazil, Turkey and South Africa may need financial
support in the next 12 to 24 months to counter capital outflows.
The worries about financing vulnerable emerging-market economies are an
additional factor overhanging stock markets, which look set to suffer a major
contraction in coming weeks from highs driven by bullishness over corporate
valuations. Concerns about Ukraine-Russia tension, as well as the euro area —
where deep underlying problems remain, despite last week's capital market return
of serial offender Greece — loom large.
In Washington, the Group of 20 industrialized nations issued a communiqué
saying they were "deeply disappointed" by failure to implement IMF changes. They
gave the U.S. until the end of the year to do so, threatening to leave America
out of new changes otherwise.
David Marsh is chairman of the Official Monetary and Financial
Institutions Forum (OMFIF), a London-based think tank that promotes dialogue
between private-sector and public institutions on world
finance.
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