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Congress Set to Approve Overhaul of IMF’s Governance


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Congress Set to Approve Overhaul of IMF’s Governance Deal would give China, other emerging economies more power at emergency lender






 




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An employee counts bills at a Bank of China branch in Changzhi. The U.S. appears set to ratify a deal that would give such emerging markets as China greater power at the International Monetary Fund. PHOTO: REUTERS





By 
IAN TALLEY


Updated Dec. 16, 2015 4:51 p.m. ET
 


WASHINGTON—U. S. lawmakers look set to ratify a five-year-old international deal to overhaul the governance of the International Monetary Fund that gives such emerging markets as China greater power at the emergency lender.


Lawmakers’ approval would resolve a long-running grievance by emerging powers that their voice and vote at the shareholder institution don’t represent their growing economic heft in the world.


Congressional leaders agreed early Wednesday morning to include the changes in a catchall tax-and-spending bill, which could become law in the coming days.


Republican lawmakers stymied modernization of the fund’s shareholder governance for years, trying to use support for the deal as leverage to win political concessions from the Obama administration and questioning the IMF’s bailout of Greece.


That delay fomented resentment among the IMF’s emerging-market membership. Many of those countries found it particularly rankling after having boosted spending during the financial crisis and becoming the primary drivers of growth out of the global recession.


It had also become one of IMF Managing Director Christine Lagarde’s greatest frustrations, who sees the overhaul of the outdated governance structure as critical to preserve the 70-year-old institution’s legitimacy.


“It is necessary for the institution to represent better the situation of the world and the balance of power between the various members of the institution,” Ms. Lagarde said at the fund’s annual meetings in October.


So desperate was the IMF chief to complete the deal that last year she jokingly said she’d belly dance for lawmakers if it would win secure congressional approval.


The Treasury Department repeatedly warned that failure to ratify the deal would undermine U.S. leadership abroad as China and other industrializing nations felt disenfranchised at the world’s last-chance lender.


Official and economists also warned that recalcitrance by U.S. lawmakers accelerated a move by emerging markets to other international financial institutions where the U.S. held little sway, such as the Asian Infrastructure Investment Bank launched this year. Officials from the largest emerging markets cited the delay in governance changes as a key reason for setting up another development bank and a $100 billion emergency-lending arrangement meant to rival the Bretton Woods institutions.


“Better late than never,” said Ted Truman, a senior fellow at the Peterson Institute for International Economics and former top Treasury diplomat.


But congressional inaction weakened the IMF’s effectiveness, and the delay has cost the U.S. dearly in terms of its credibility and global leadership, Mr. Truman said. “The U.S. is no longer seen as a reliable negotiating partner on IMF issues,” he said.


“Resolving this is a win for good global economic governance,” said Robert Kahn, a senior fellow at the Council on Foreign Relations.


If Congress approves the governance changes as now expected, India, Brazil, Turkey and other countries will have more voting weight at the IMF in line with their contribution to the global economy. Under the governance overhaul, China’s new voting shares would make the world’s second-largest economy the third-biggest shareholder at the IMF, moving it ahead of Germany, France and the U.K.


The deal will also boost the IMF’s war chest, shifting emergency reserves borrowed from member countries during the financial crisis into the fund’s normal lending account.


Of critical importance to Washington, the U.S. would hold on to its veto power over most major decisions at the IMF.


Republican lawmakers did wring several concessions out of the administration to back the deal.


One relates to the Greece bailout, which required the IMF to change its lending rules to open the fund’s cash spigots for a country whose debts appeared unsustainable. The administration will now have to support repeal of that rule change, a provision the U.S. Treasury wanted to preserve.


Write to Ian Talley at ian.talley@wsj.com





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