Saturday, Jul 23, 2016
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Editorials

Shifting reality

WHAT occurred at the meeting of the International Monetary Fund in Washington a week ago made it clear that reforms in the IMF's basic organization are needed to bring it in line with the world economy of 2009.

The IMF is a product of the famous Bretton Woods meeting of 1944 that also created the International Bank for Reconstruction and Development, commonly known as the World Bank.

They were efforts to facilitate the reconstruction of key parts of the world after the destruction of World War II and in the face of the impending end of colonialism in Africa, South Asia, and elsewhere.

The agreements were intended to put into place in structures that would prevent the sort of economic disorder that resulted in the Great Depression and in the rise of Nazi Germany from the wreckage of the post-World War I European economy.

Power within the IMF depends on weighted voting rights. These have kept a preponderance of authority, including the presidencies of the IMF and the World Bank, in the hands of the countries that were the big dogs on the block in 1944.

There has been little change since. That means that China packs about the same weight today as Italy does. India has less influence than Belgium, the Netherlands, and Canada. The situation doesn't reflect the world's reality.

Need for the IMF's services was pretty much limited to poverty-stricken Third World countries until recently, although it also rescued at various times countries like Argentina and Mexico. Now, with the carnage of the current economic recession turning up in more countries - some of them formerly prosperous, including Hungary, Iceland, and Latvia - the IMF is being increasingly solicited for bailout funds.

Not surprisingly, the IMF is coming up short. It is predictable that it would turn for more money not only to old-time faithful donors such as the United States and the United Kingdom, but that it also would knock on the door of new economic high-performers such as China, India, and the Persian Gulf oil states.

The leadership of these new economic powers acknowledges their changed status and their ability to be of assistance, but is demanding a price: a stronger voting and management position within the IMF and the World Bank. On that basis, these countries are, logically, dragging their feet on putting up significant new funds to aid others in the world.

The United States should lead the way in adjusting the power structure of these international financial institutions to reflect what's going on in 2009. Such action would not only spring the necessary funds needed to remedy current troubles but also reflect the new reality of the economic world.

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