IMF 'Plan B' on reforms could slash US power

IMF 'Plan B' on reforms could slash US power
International Monetary Fund (IMF) President Christine Lagarde.

WASHINGTON - Washington's block on crucial IMF reforms has pushed the crisis lender into discussions of other options, with one proposal potentially slashing US voting power nearly in half, AFP learned Tuesday.

Talks on "Plan B" have emerged because patience has run out with the US Congress' failure to ratify the 2010 reforms originally strongly supported by the White House.

The reforms would both realign the power of members on the IMF executive board, boosting emerging countries like China and India, and double the capital resources the bank uses to support countries in financial crisis.

Brazil's executive director at the IMF, Paulo Nogueira Batista, has outlined a plan to "delink" the two components of the reforms in a way that could allow them to go ahead without requiring the US Congress to approve them.

"The link between these two elements is unnecessary as each pursues independent objectives that can be delivered separately. Delinking them would require the support of the US administration but not ratification by US Congress," Batista said in the proposal.

"The delinking proposal is constructive and simple and could clear the way for the continuation of the IMF reform process."

The Brazilian plan would first advance the modest realignment of power as planned since 2010 by giving emerging countries more seats on the executive board at the cost of Europe.

That proposal was long-accepted by the White House, but blocked by Congress.

After that happens, the resources increase could also be enacted separately, relieving the IMF's dependence since the financial crisis on borrowed funds.

That could challenge Washington's dominant role in the Fund since it was established in 1945.

Because contributions to IMF resources determine a country's voting quota, if Congress still does not give its support, its quota could fall from 17.7 per cent to 9.8 per cent, according to Batista's plan.

That drop is significant because major IMF board decisions require 85 per cent of quotas in support, giving the United States unique veto power.

Batista allows that a deal could be done to allow Congress time to reconsider and endorse the resource increase, restoring Washington's veto.

"With carefully chosen language such decisions can provide adequate assurances to the US Administration that the delinking option would preserve, de facto, its veto power over decisions requiring 85 per cent," he said.

"In the meantime, Fund members able to consent to their quota increases would be allowed to replenish the Fund's permanent resources."

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