The usual love-hate relationship: Saudi accuses US of stalling IMF governance reforms and clinching on to voting power
The US is responsible for delaying long-awaited IMF reforms, Saudi Finance Minister Ibrahim Al-Assaf told Asharq Al-Awsat on the sidelines of the Spring Meetings of the IMF and World Bank in Washington, DC on Saturday.
“The finance ministers of the G20 have agreed to delay decisions regarding this issue [IMF reforms] until the end of the year in the hope that the American position will change, or to find an alternative [solution] in the event that Washington does not respond by the end of 2014,” he said.
The reforms, agreed upon in 2010 for application in 2012, should have given emerging markets such as the BRICS countries—Brazil, Russia, India, China and South Africa—as well as countries such as Saudi Arabia, more voting power at the IMF, in addition to doubling the organization’s lending capacity to 720 billion US dollars—the latter reform requiring increased contributions from member states.
But Washington lawmakers have refused to pass the reforms, claiming they would prove too heavy a burden during a time when the US is still running a large budget deficit.
The US is the IMF’s largest shareholder and dominant member. Under the new reforms it would have 17 percent of total IMF shares, allowing it to retain its veto privileges since motions at the international lender require the approval of at least 85 percent of shares in order to be passed.
In a joint communiqué released following the meetings, G20 finance ministers said they were “deeply disappointed with the continued delay in progressing the IMF quota and governance reforms agreed to in 2010,” adding that the issue “remains our highest priority and we urge the US to ratify these reforms at the earliest opportunity.”
It added: “If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps and we will work with the IMFC [The International Monetary and Financial Committee] to schedule a discussion of these options.”
Speaking of IMF recommendations for Gulf countries and Saudi Arabia in particular to rein in public spending, giving wider berth for the private sector to make a larger contribution to growing these economies, Assaf said: “Firstly, government spending in the Kingdom is directed primarily toward infrastructure projects which are being implemented by the private sector, which cannot grow or work without [a] solid infrastructure base.”
Assaf also said the meetings, which are being held over April 11–13, also discussed the recommendations of the Financial Stability Board—an umbrella organization of global finance ministries and central banks including the Saudi Arabian Monetary Agency —regarding measures taken in the event of bankruptcy of global systematically important banks, or those deemed “too big to fail.”
Such banks came to prominence in the aftermath of the global financial crisis of 2007–2008 when governments such as those of the UK and the US used taxpayer money to bail out global finance heavyweights such as Goldman Sachs, Citigroup, Morgan Stanley, AIG and Merrill Lynch (now Bank of America Merrill Lynch) and the Royal Bank of Scotland, which were deemed too important to the US and the global economy to follow Lehman Brothers into bankruptcy.