The refusal of the US to ratify the agreement is particularly paradoxical after US policy makers had been far more active in promoting the deal than their European counterparts. Now, there is no realistic chance that reform will be implemented before 2015.
Specifically, the reforms would have doubled the IMF’s quota to $720 billion, it shifts six percentage points of total quota to developing countries. China will become the third largest quota-holder at the Fund (second only to the US and Japan), and Brazil, Russia, and India all become top-ten quota-holders as well. Under the reform, U.S. voting power will decrease slightly but it would still maintain its veto. In addition, in reforming the Fund's Articles of Agreement, the change moves two of the 24 IMF directorships from European to developing countries.
While emerging powers have remained patient over the past year, discontent has begun to spread among those who would stand to benefit most from the changes. The situation is particularly bizarre because a further round of IMF quota reforms is already under discussion and due for completion in early 2014.
In March 2013, almost 100 policy makers and academics sent a letter to US Congress urging the ratification of the reforms, arguing that any further delay would crucially reduce the United States' credibility in the Fund. It would also reduce confidence that the United States continues to be willing and able to assume leadership in global financial management. What good is a forward-looking President if he cannot convince US Congress of the necessities of reform? Finally, further delay could challenge the narrative that while the United States is willing to adapt global governance structures to new realities, it is mainly Europe that fears the rise of the BRICS.
The lack of reform is particularly problematic as Europe will remain heavily over-represented at the IMF, at a time when the institution provides large loans to troubled eurozone countries. As a consequence, tensions between established powers and emerging ones are bound to continue.
Indeed, the decision is a boon for those who argue that, despite all the rhetoric among European and North American leaders, established powers will never allow the Bretton Woods institutions to become truly inclusive and democratic. Analysts in Brazil, India and South Africa were quick to point out that this would strengthen the BRICS' resolve to go ahead with the creation of the BRICS Development Bank.
This article was originally published by Oliver Stuenkel on his blog, The Post-Western World.