Magazine article Global Finance

2015 ANNUAL MEETINGS: World Bank Group International Monetary Fund LIMA, PERU

Magazine article Global Finance

2015 ANNUAL MEETINGS: World Bank Group International Monetary Fund LIMA, PERU

Article excerpt

This year's annual meetings of the International Monetary Fund and World Bank promise plenty of fireworks. Topics on the agenda at the gathering in Lima, Peru, this month include foreign exchange volatility, the slowdown of emerging markets and the seemingly never-ending crisis in Greece. But officials from emerging markets nations will have a different, pricklier agenda. They want a bigger say in how the IMF and World Bank are run.

It's a contentious issue, one that could alter the face of the two multilateral institutions. So far, efforts to reform the governance of the Fund and the World Bank have stalled, disillusioning authorities in some emerging markets countries. But with the advent of two rival organizations-the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank Brics- those officials have a great deal more leverage in the discussions.

"This subject has been on the table for a while," says Andrea Montanino, global business and economics program director at the Atlantic Council in Washington. "But with the new Asian Infrastructure Investment Bank and Brics Bank, it is going to be front and center."

Officials from China, which launched the AIIB and is a financial backer of the Brics bank, will no doubt demand more voting rights for itself and other developing countries. Lack of progress will not sit well with China. Now, however, officials in Beijing have options. "As usual, at the meetings China will bring up the issues of raising the voice of emerging markets economies," saysjie Li, Professor at the Central University of Finance and Economics in Beijing. "But the AIIB and Brics bank will surely cut back China's interests in the IMF and World Bank."

With new competitors, the raison d'être of the IMF and World Bank could be called into question. Dissatisfied governments can start looking elsewhere for help. "There will definitely be what I would call conditionality arbitrage between these different structures," says Jannie Rossouw, head of the School of Economic and Business Sciences at Wits University in Johannesburg, South Africa. "Countries in Africa will look at the conditions of financial assistance offered by the IMF as opposed to this new venture and seek the better terms."

Much depends on the US Congress, which may be bad news for countries seeking greater influence at the IMF. Legislators in Washington, DC, have been blocking reforms already on the table. Now, with the 2016 presidential campaign in full swing, politics in the US is overshadowing the legislative agenda. Although president Barack Obama supports the changes, time is growing short. "There is no chance that this Congress will do anything," says Desmond Lachman, resident fellow at the American Enterprise Institute in Washington and a former deputy director in the IMF's policy development and review department. "It is even more against the reform notion than the previous one that had already opposed these measures."

With the future role of the IMF hanging in the balance, officials have been looking into an interim solution that doesn't require US approval. "This would clearly not be fully satisfactory for emerging market economies," says Montanino, who is a former executive director of the IMF, "But at least it would show good will on the part of the Fund."

WORSE OFF

Oddly, though China is championing the cause of emerging markets nations at the IMF and World Bank gatherings in Lima, those countries will arrive at the meetings in a more vulnerable state-owing in large part to events in the People's Republic. The economic slowdown in the country has hurt exports from emerging markets and contributed to the plunge in commodity prices. …

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