The U.S. is tarnishing its reputation abroad by failing to adopt an overhaul of the International Monetary Fund’s ownership structure and governance, said the top finance official from the country chairing the Group of 20 nations this year.
“I am deeply disappointed that the IMF quota and governance reforms that the G-20 agreed to in 2010 have still not been implemented and that the path forward for ratification is now highly uncertain,” Australian Treasurer Joe Hockey said in a speech today in Washington. “The failure to finalize this issue diminishes America’s global standing.”
The U.S. is delaying implementation of a 2010 agreement by all IMF member countries to adjust some nations’ shares, or quotas, in the fund and double its lending capacity to about $739 billion. The plan would give emerging markets such as China more clout at the institution, which was set up at the end of World War II to help safeguard the stability of the global monetary system.
The U.S. is the largest shareholder of the fund, with a voting share of 16.8 percent. Major decisions require 85 percent approval, effectively giving the U.S. veto power.
“As a close friend of the United States, we will always call it as we see it from Australia,” Hockey said. “And in relation to the reforms of the IMF, this impasse in the United States is letting everyone down.”
Under opposition from some Republican lawmakers, the U.S. Congress last month dropped language from a Ukraine aid package that would have followed through on the U.S. pledge for changes at the IMF intended to make the Washington-based lender more closely reflect the global economy.
“Given that the United States drove the reform agenda of the IMF, and the United States Congress is now the biggest impediment to that reform actually being delivered, it has done considerable damage to the standing of the United States,” Hockey said. “Most likely, there will be substantial delays before another opportunity arises” and “these delays are laid firmly and uniquely at the feet of the United States Congress,” he said.
Hockey criticized the U.S. as economic policy makers from around the world descend on the American capital for the spring meetings of the IMF and World Bank later this week. G-20 finance ministers and central bankers are holding parallel talks April 11.
Hockey added the voice of a developed economy to a chorus of emerging markets’ officials from Mexico to Brazil that are losing patience to see a 3 1/2-year-old agreement implemented as they seek to start the next round of negotiations that will further increase their voting power.
His British counterpart, Chancellor of the Exchequer George Osborne, initiated the U.S. pillorying this week during a visit to Brazil, saying the failure to ratify the agreement “is bad for the institution and bad for the international community.”
The changes will allow countries such as Brazil “to have the enhanced status and say that your economic strength earns you the right to,” he told a Rio de Janeiro audience April 7.
In a prepared statement for an April 12 meeting of the IMF’s steering committee, European Commission Vice President Siim Kallas said all 28 European Union members had passed the agreement and encouraged all IMF member countries that have not yet ratified it to do so soon.
“For all its issues and limitations, the IMF is a global public good,” said Andrew Sheng, distinguished fellow at the Hong Kong-based Fung Global Institute, at an IMF conference today. “The trouble is that its largest shareholder has just rejected increasing its capital.”