Is US denying China a bigger voice at the IMF?

China might have to wait longer to enjoy a bigger voice at the International Monetary Fund (IMF), the world's foremost lender of last resort, thanks to a US proposal that's gaining traction among the IMF's 190 members.

The review of IMF quotas, the money that member countries commit to the multilateral body that it uses to lend to other countries, was one of the main topics on the agenda at the annual meetings of the IMF and the World Bank Group this week in Marrakech, Morocco.

Sidestepping growing clamor from China and other emerging countries for a larger shareholding in the IMF, the US has proposed an "equiproportional" increase in IMF quotas. That means member countries should make higher contributions in proportion to their existing quotas without expecting a change in their voting shares, which were last revised in 2010.

US Treasury Secretary Janet Yellen said in Marrakech the US was committed to a new "fair and simple" quota formula that reflects the economic size of IMF members, but "regrets that agreement on a new formula" remains elusive.

"In the absence of a new formula, an equiproportional increase is the only viable outcome that avoids arbitrarily picking winners and losers," Yellen said.

IMF quotas out of sync with economic realities

The IMF says it needs more money to continue extending financial help to needy countries in a world that's becoming increasingly prone to geopolitical and environmental shocks. Quotas contributed by IMF members account for more than 40% of the Fund's lending basket, with bilateral and multilateral borrowing making up the rest.

Quotas are a reliable and predictable source of funding, a reason why IMF members repeatedly reiterate the need to boost quota contributions and reduce the institution's reliance on borrowed funds. The last increase in quotas was agreed in 2010 and took effect six years later.

Countries like China, India and Brazil agree that the IMF's lending pot needs to become larger with larger contributions from its members, especially given the lender's key role as the first responder to global economic shocks as seen during the COVID-19 pandemic and the war in Ukraine. But they have also been pitching for a proportionate rise in voting rights to reflect their growing economic clout.

"Quotas determine voting power and voting power has to add up to 100%. If somebody rises, somebody has to go down. Even if people agree that certain countries deserve to go up, nobody's willing to pay for that increase," Mark Sobel, US chairman at OMFIF think tank and a veteran US Treasury official, told DW. "In a way, it's a microcosm of geopolitical power and rivalries."

IMF Managing Director Kristalina Georgieva has been backing quota reforms that would redistribute shareholdings at the IMF to reflect the growth of China and other emerging countries. In Marrakech, she called on members to set a deadline for the realignment of the shareholding structure, Reuters news agency reported.

Washington's political compulsions

Experts say the US's reluctance to a quota reform that includes a realignment of voting shares stems from concerns that such an exercise would inevitably give more voting power to China.

China accounts for about 18% of the global economy, yet it enjoys just a little over 6% of the IMF's voting share. This discrepancy means Beijing would be the biggest beneficiary of a quota realignment. Currently, the US is the biggest shareholder with a 16.5% share, effectively giving it veto power since major decisions need 85% approval.

The US administration has to seek congressional approval for any IMF quota reform. The last time it took the government years to get Congress to put its stamp on the 2010 reform that increased China's voting at the expense of European countries.

"Bringing anything to Congress right now in this very polarizing environment, both domestically and internationally, that includes more weight for China, I think would be impossible," Karen Mathiasen from the Center for Global Development think tank told DW.

China not adhering to shared principles

US officials have been arguing that China doesn't deserve more voting power at the IMF until it takes on more responsibility in aiding global debt relief efforts and becomes transparent about its foreign exchange practices.

Beijing, one of the biggest bilateral lenders in the world, has been blamed for stalling progress on debt restructuring for poor countries, delaying their return to sustainable debt. It has also been criticized for offering loans often shrouded in secrecy.

In September, US Treasury Undersecretary for International Affairs Jay Shambaugh said it was important that "all countries — especially those that would see an increase in share — are respecting the roles and norms of the IMF and working to strengthen the international monetary system."

Support for the US proposal

To make its proposal more palatable to emerging market economies and low-income countries, the US has called to add a fifth deputy managing director position at the IMF to ensure better representation for those countries. It also backed the creation of a third chair on the IMF Executive Board for sub-Saharan Africa.

The US proposal has seen increased backing from IMF members in Marrakech, including European countries led by France and the UK.

Brazil said it would support the US proposal, if it were coupled to an "ad-hoc" share increase for the most "blatantly underrepresented" IMF members, Reuters reported.

"The US proposal in some ways politically suits the US," Sobel said. "The vast bulk of emerging markets or developing countries, they're not performing well. Their share in the global economy isn't rising. So they too are not going to fuss about it."

Is the IMF's legitimacy at stake?

The G24, a diverse grouping of developing and low-income countries with China as a special invitee, warned in Marrakech that the "legitimacy and effectiveness of IMF hinges on quota realignment."

"This process is crucial for bolstering the voice and representation of LICs [low-income countries] and MICs [middle-income countries] within the IMF," it said in a statement.

In April, the governor of the Chinese central bank, Yi Gang, said the quota reform was needed "to fundamentally enhance the Fund's legitimacy, effectiveness and representativeness."

Sobel says a failure to implement a realignment of quotas now won't hurt the IMF's relevance and legitimacy, while adding that multilateral lenders backed by China like the New Development Bank "and the Asian Infrastructure Investment Bank wouldn't be able to replicate the IMF's impact."

"Everybody, including China and the US, has an interest in global financial stability," Sobel said. "If a country somewhere in the world is having a balance of payments crisis, who do you turn to? You turn to the IMF. That is true, whether there's a realignment or not."

The ongoing 16th review of IMF quotas is scheduled to be completed by mid-December 2023.