US-Europe scandal may paralyze IMF

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International Monetary Fund. © Flickr.com/David Boyle/cc-by

The International Monetary Fund (IMF) may lose its board of directors amid the escalating scandal between the United States and Europe over the ways to reform this financial institution. The scandal came as a bombshell, while IMF’s spokesman Gerry Rice said there was nothing to worry about.

It all started with Europe’s refusal to give some of its 9 seats in the 24-member board of the International Monetary Fund to emerging markets. It should be noted that the fund’s lending capacity is distributed in compliance with the members’ voting power. Naturally, the European board, which has been dominating since the IMF was founded, will not yield power and thus sabotage the decision made by the leaders of last year’s G20 summit in Pittsburg.

At the summit, the sides reached a historical compromise, assuming obligations to redistribute IMF quota shares in favor of developing economies, expert with the Finance Academy of the Russian Government Boris Rubtsov said.

Obviously, while China, India, Brazil, and Russia are gaining strength, their role in decisions by the International Monetary Fund should also increase. I think it would be logical if both the US and Europe yield some of their seats, said Rubtsov.

IMF’s new executive board is expected to assume office on November 1st this year. According to the organization’s official spokesman Gerry Rice, there is no cause for concern, even though the US and Europe failed to reach a compromise within a year. If the latter eventually refuses to lose some seats, Washington will not give ground too. The US may once again use the blocking stake and frustrate the decision on re-electing the current board of directors, as it happened last week. The International Monetary Fund will prove incapable of making any further decisions unless a compromise is reached between the two sides.

Of course, it is possible to form a restricted board, but in this case African countries will be out of the running. And this may result in a more prominent political scandal.

Remaking the board members’ areas of responsibility will also prove painful, since many of them represent the interests of not only their countries.

Another obstacle for seeking a possible way out is Europe’s inability to promptly make permanent decisions, especially if it needs to yield some of the privileges to developing countries.