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In 2010, the United States brokered a deal within the G20 that included three major elements - a doubling of quotas (Fund resources) with a small reallocation towards emerging markets and China; provision for an all-elected Executive Board; and an informal agreement that “advanced” Europe would reduce their representation on the Executive Board. 

As these reforms required legislative action in member countries, the reforms have languished as the US Congress failed to pass the necessary legislation – seriously damaging US credibility and leadership. The US Congress finally acted to approve these reforms – but at the same time, it has placed further limitations on the freedom of the US government to act on IMF issues.

The reforms are likely to be implemented in early 2016; a welcome development after a long wait. However, these reforms were meant to be a first installment of deeper IMF governance reform, but prospects for further reform now look dim. Why?

First, US failure to act on this issue for four years, combined with their clumsy opposition to the new Asian Infrastructure Investment Bank (AIIB), has crippled their ability to promote further reform. The need for Congressional acceptance and the risk of Congressional inaction/opposition weakens the United States’s ability to conclude agreements, as other countries will be reluctant to accept Administration positions as the final word.

Second, the current quota agreement will not result in additional resources for the IMF – it is a reshuffling of various commitments by countries. A further increase was to have been concluded by the end of 2014. This will now only start next year and is most likely to be concluded under a new US Administration – if an agreement can be found.

Third, addressing the European overweight within the Executive Board remains elusive and a central issue. While European constituencies were reconstituted after the 2010 agreement, Europe continues to hold eight of the 24 chairs on the Executive Board. No formula can justify Europe holding one-third of the Chairs. European representation must be significantly decreased, which will also facilitate a greater shift of voting power to developing countries.

Finally, the position of the Managing Director of the IMF comes open next year reviving the debate about the need to move beyond Europe, which has always held the position. The current managing director, Christine Lagarde, has won wide praise for her performance and many have hoped that she would seek reappointment. She has been coy in saying whether she would run again and now the action of the French justice system to place her on trial has complicated matters. David Lipton, an American and the current first managing director, is due to retire next year and will need to be replaced. There are three other deputy managing directors constituting the senior management of the IMF, which remains a highly centralized organization.

The IMF innovated in the appointment of the most recent deputy managing director, a Brazilian, by employing a search firm with a defined list of criteria. This was a welcomed step and may provide a model for future appointments.

There is one more issue that needs to be addressed; this position is more of a chief operating officer rather than a leader on the substance of the IMF’s work. This means that the four top senior policy positions — held by a European, American and two Asians (Chinese and Japanese) — are raising questions about geographical balance. While merit should always be the guiding principle in appointments, geographical representation also plays a role in enhancing legitimacy.

The IMF will enter 2016 with a small step forward and the ability to implement the 2010 package of reforms. But, it will face huge challenges moving beyond this. Major potential changes in senior management, the challenge of reaching agreement on additional resources (quota), shifting more voting power to developing countries, and reducing Europe’s over-weighted role are key issues in advancing IMF governance reform. With the diminished capacity of the US to lead, and the defensive posture of Europe, who can be looked to push forward deadlocked IMF reforms? China, who chairs the G20 in 2016, is perhaps the only major player positioned to do so. It will be interesting to see whether it is able to rise to the challenge.

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