Washington — U.S. Treasury Secretary Jack Lew again has urged Congress to approve reforms for the International Monetary Fund (IMF) that will enhance the fund's ability to represent all of its 188 members and make its governing structure reflect today's global economy.
In May, the House of Representatives and the Senate rejected the request as too politically sensitive in the tense budget environment in Washington at the time. U.S. approval is the last step needed for the reform to go into effect, Lew told the House Committee on Financial Services December 12.
Once the reform package is approved and implemented by the three-fifths of the IMF member countries that have 85 percent of the total voting power, "it will result in an unprecedented 100 percent increase in total quotas and a major realignment of quota shares," the IMF says. Quotas are what each member country pays to support the work of the IMF.
Reforms to modernize the IMF were secured at the 2010 summit of the world's 20 major economies. The reforms would preserve the U.S. veto at the IMF and leave the overall U.S. commitment to the fund unchanged, Lew said.
"To be effective, the IMF must be seen as representing the interests of all its 188 member countries. For this reason, it is crucial that its governance structure reflect today's world economy," IMF states in a fact sheet. The fund says the reforms would shift 9 percent of quota shares to dynamic emerging markets and developing countries.
Lew said the 2008-2009 global financial crisis demonstrated the need for strengthening financial-sector regulation across the globe. "In particular," he said, "the crisis highlighted the need for building much stronger and more resilient financial institutions, greater market transparency, and a high-quality level playing field across borders that protects against regulatory gaps, arbitrage, and a race to the bottom."
"The IMF, the World Bank and the [multilateral development banks] have proven to be effective pillars of the international financial architecture," Lew said. He said the development banks are making long-term investments "to help foster the next generation of emerging markets."
"Our investments in these institutions foster a more stable and vibrant global economy, which is critical to a growing U.S. economy," Lew testified. "That is why it is so important that Congress acts to approve IMF quota and governance reform."
Lew said that although growth has slowed in some emerging economies, the IMF is still advising governments to improve their policy frameworks and build greater resilience through exchange rate flexibility, supportive monetary policies consistent with inflation and strengthened regulatory and supervisory policies.
He said that in fiscal year 2014 the United States will make new commitments to the International Development Association of the World Bank and to the African Development Fund, the two largest sources of finances for the world's poorest countries.
Lew also said that as the United States and other advanced economies return to normal as growth strengthens, emerging markets will need to make reforms "that increase their resilience and address structural constraints to growth."