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Wednesday, February 13, 2013

IMF Reforms: Issues for Congress

Rebecca M. Nelson
Analyst in International Trade and Finance

Martin A. Weiss
Specialist in International Trade and Finance

In December 2010, the Board of Governors of the International Monetary Fund (IMF, the Fund), the institution’s highest governing body, agreed to a reform package that addresses two major concerns about the institution: (1) that the size of the IMF’s resources has not kept pace with increased economic activity in the global economy; and (2) that the representation of emerging and developing economies at the IMF does not reflect their growing importance in the global economy. Key parts of the reform package cannot go into effect until a number of IMF countries formally approve the reforms. If enacted, these reforms would increase the size of the IMF’s core source of funding (IMF “quota”), and increase the representation of emerging market and developing countries at the IMF to reflect more accurately their weight in the global economy. 

Implementing the Reform Package, and the Role of Congress 

IMF rules do not require formal approval of the reform package by all IMF member countries, but the support of the United States, as the largest shareholder at the institution, is necessary. Although many other IMF member countries have submitted their formal approvals for these reforms, to date, the United States has not formally approved these reforms. Under U.S. law, the Administration cannot do so without specific congressional authorization. Appropriations could also be necessary. Although some speculated that the Administration would submit a request to Congress for authorizing the reforms in 2012, no request was made. Some speculate that the request could come in 2013 and could be considered in the 113
th Congress. I

Implications of the Reform Package

Arguments for Reforms
: Proponents argue that the reform package is necessary for maintaining the effectiveness and legitimacy of the IMF as the central institution for international macroeconomic stability. The IMF’s core source of funding needs to be increased, they argue, in order to give the IMF the resources that it needs to respond effectively to financial crises. They also argue that the under-representation of emerging economies at the IMF is broadly perceived as unfair and reduces the support of several member countries for IMF programs and initiatives. 

Arguments against Reforms
: Opponents argue that since the IMF has found other ways to supplement its resources during economic crises, the IMF’s core funding source does not need to be increased. Opponents are also skeptical that emerging economies support the existing norms and values of international financial institutions, and that these countries may prefer financial and trade strategies that are less aligned with those of the United States. 

Potential Impact on the United States
: Implementing the reforms would not increase total U.S. financial commitments to the IMF and would have little impact on U.S. representation at the IMF. The reforms would require transferring some U.S. financial commitments from a supplementary fund at the IMF (the “New Arrangements to Borrow,” or NAB) to the IMF’s core source of funding (quota). This transfer could require appropriations, depending on how the Congressional Budget Office (CBO) scores the transfer of funds. The share of U.S. voting power at the IMF would fall slightly, but the United States would still maintain its unique veto power over major policy decisions.

Date of Report: February 1, 2013
Number of Pages: 17
Order Number: R42844
Price: $29.95

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