Opinion: IMF rules continue to be rigged against the world’s poorest

Imagine a game of cards where the rules mean some players hold all the aces while some are only allowed twos and threes. And the rules can only be changed by those holding all the aces. “They,” of course, are the high-income countries while low- and middle-income countries are largely powerless in this game. Now guess what happens when the International Monetary Fund countries get together as they did recently to rewrite the rules? It’s even worse than what you may be thinking. The latest IMF review of the rules, or “quota shares” to use the jargon, has made it even harder for future reviews to make the system fairer. Let us explain. Since the COVID-19 pandemic, the global policy agenda has paid increasing attention to reforming the international financial architecture, including the IMF, to ensure that enough money is available to achieve the United Nations’ Sustainable Development Goals and tackle climate change. While these efforts rightly recognize that the current system is not fit for purpose, they miss the crux of the problem, which is the unequal distribution of power between high-income and LMICs in the international financial institutions that govern the global economy. This imbalance leads to reform efforts that, instead of tackling the root causes of LMICs' chronic financing needs, deepen the very systems that created these inequalities in the first place. This week’s announcement of the outcomes of the 16th IMF review of quotas, the system governing decision-making power within the IMF, is a clear example of this failure. IMF governance 27 years out of date IMF quotas are allocated based on the size of countries’ economies, meaning richer countries get more vote shares, are obligated to make larger financial contributions to the IMF, and can access more of the IMF’s loans if needed. As demonstrated by Christian Aid analysis, the United States currently holds 16.5% of the entire vote share, while the seven largest European countries and former colonial powers (Germany, United Kingdom, France, Italy, Spain, Netherlands, and Belgium) account for 21.5%. Forty-five sub-Saharan African countries hold only 4.7%, while the Vulnerable Twenty, the group of 55 countries that are most threatened by climate change and represent 1.4 billion people, collectively hold just 5.4% of the vote share. This system further concentrates the power imbalances that characterize the global economy. A process for reviewing the quantity and distribution of IMF quotas does exist and is run regularly. However, geopolitical considerations prevent any significant changes being made. In 2019, the 15th review of IMF quotas was unilaterally blocked by the U.S. for fears a review would increase China’s vote share. As a result of tactics like these, the current quota distribution actually reflects the position that China held in the global economy by size in about 1996, 27 years behind the world of today. 16th IMF quota review: A spectacular failure on all fronts Given that the 15th review was obstructed in its entirety, the 16th review raised great expectations to deliver on both a redistribution of quotas and an increase in total IMF resources. The expectation for redistribution especially had been clearly articulated by leaders of the global south, including via at least half a dozen Group of 24 communiqués, BRICS group declarations, and numerous individual ministerial statements. These expectations were in part based on repeated commitments of the U.S. and Europeans to realign quota shares to better reflect members’ positions in the world economy and deliver on a new quota formula, going as far back as 2012 and as recently as September 2023, when leaders of the Group of 20 major economies once again promised to do so during the 16th review. However, the final outcomes of the review published this week spectacularly failed on both fronts. The review increases IMF quotas for all member countries equiproportionally by 50%, but it also reduces reliance on the IMF’s other major sources of funding by the same amount. In other words, nothing has been done to boost the IMF’s overall lending capacity, despite IMF projections of increased financing needs. With regards to quota redistribution, the IMF’s most powerful members not only broke their repeated promises to consider a new quota formula, but they actually went out of their way to avoid even small adjustments being made that usually result from quota increases, at least since 1983. Despite pleadings in the final hours of negotiations by countries from the global south to at least attend to the most blatantly underrepresented members through ad hoc arrangements, the U.S. and Europeans broke with historic precedents to use either of these redistribution methods. Instead, the fully equiproportional increase makes it harder to realign quota shares in future, because any newly created quotas are averaged out with existing quota shares, meaning more will need to be done in future reviews to offset the effects of this increase. This inadequate outcome largely results from the unwillingness of the U.S. to concede any additional power to China, despite suggestions that the two superpowers could perhaps strike a “grand bargain,” with China getting a higher share of quotas in exchange for more committed participation in debt restructuring efforts. It also shows the failure of European countries to demonstrate leadership on the democratic economic governance agenda and the hypocrisy of their claims of upholding the rules of the international system. ‘You are not hearing us’ The increasing dissonance between the distribution of power at the IMF and the dynamics of the global economy is becoming more and more untenable, unjustifiable, and unsustainable. The IMF managing director’s statement describing the review’s outcome as a strong signal that IMF members can still come together in ways that that instill confidence in the institution is simply not credible to anybody watching from outside the bubbles of Washington D.C., Brussels, and London, as the sense of continued disenfranchisement grows among LMICs excluded from decision making concerning their own economy and ultimately the destiny of their citizens. Speaking about global financial architecture and IMF governance reform, the President of Kenya William Ruto put it clearly to global north leaders earlier this year when he said, “You are not hearing us.” The coming years present several opportunities for the U.S. and European governments to finally reckon with the growing calls for global governance reform from LMICs that increasingly see them as untrustworthy and irrelevant in a multipolar order — but are they listening?