Academy Model United Nations 2012

Bergen County Academies

International Monetary Fund

Sarah Rothstein

Hope Yi

Hello Delegates!

My name is Sarah Rothstein, and I am currently a senior in the Academy for Business and Finance at BCA. My Model UN experience includes participation in the Princeton Model UN Conference (PMUNC) 2010, where I won Honorable Delegate in the Economic and Financial Committee (ECOFIN). I have participated in AMUN since my sophomore year, where I won Honorable Delegate in the IMF committee. Last year as a junior I gained invaluable MUN experience by staffing an AMUN committee. Next year in college, I hope to pursue a degree in international business and economics.

Hello, my name is Hope Yi and I am also a senior in the Academy for Business and Finance. I have been participating in AMUN ever since freshman year, particularly in the SOCHUM committee, in which I have won Outstanding Delegate. In university, I plan to major in international relations.

We are both very excited to apply my knowledge and passion for international finance to making the IMF committee in this year’s AMUN the best yet. If you need any clarification about the topics or have concerns regarding position papers, we encourage you to email us before the conference at .

Warmest regards,

Sarah Rothstein and Hope G. Yi

Topic 3: Distribution of Power in the IMF

2

Overview

The current balance of power in the IMF dates back to its foundation in the wake of the devestatation of Word War II. The victorious Allied powers met in Bretton Woods, New Hampshire, and were charged with the extremely difficult task of creating an organization that can stabilize the world economy around exchange rates (the value of one currency for the purpose of conversion to another).

Just as the UN arose out of a heightened consciousness in the international community of the need for an organization to negotiate treaties and keep the peace, the Allies in the aftermath of two highly destructive wars recognized the need to rein in the global economy. Thus, the IMF was also given the power to monitor the economies of its member states, a job that the organization now carries out in 187 countries. It employs staff to monitor these nations and advise them on their overarching macroeconomic situation. The IMF conducts surveillance of its member states under its important Article IV review.

Power Distribution

Quotas

Quotas are used to determine the share each member nation has in the IMF. It serves several functions as an organizational tool. It determines the maximum amount of financial resources the member is obliged to provide to the IMF. It also decides the amount of loans a state can request from the IMF (its allocation of SDRs). Most relevantly to our debate is that the quota serves to determine a member’s voting power in IMF decisions. Each member state receives a number of basic votes with another vote added for each SDR 100,000 of quota that it contributes. As of 2008, the number of basic votes is equivalent to 5.502 percent of total votes. This means that by this system, the poorest member state accounts for a meagre 5502 percent of the total voting power, while the world’s largest economy, the United States, has 17% of SDR holdings.

Modern day colonialism

With its 17% share, the United States is the only power that is able to block any major decision, as these require a supermajority of 85%. The combined 27 member states of the European Union have a total vote of 32%. This has led many critics to lament that the current balance of power in the IMF does not accurately reflect the state of the global economy. Countries like Brazil have been helping out the money-strained IMF as it struggles to deal with the European debt crisis. Meanwhile, the United States is two years into a recovery from its sub-prime mortgage crisis, and its economic outlook seems to worsen with every assessment.

The overrepresentation of the United States and European powers in the IMF is a stay-over from an era that is receding farther and farther into a forgotten past. In 1945, the Allies were the onlypowers that could concievably provide any kind of leadership. However, in the modern world, this imbalance is perceived as an attempt by Europe and the U.S. to exert their hegemony over the rest of the world.

While the biggest shareholders in the IMF are undoubtedly the wealthiest countries, and their contributions to the fund should always be compensated, it is important to remember the smaller nations that are stakeholders in this global partnership.

The Contenders

BRIC Countries

The BRIC countries, as well as South Africa, have over the past couple of decades become vital emerging economies with rapidly developing modernizing societies. China in particular is poised to overtake the US in GDP in the foreseeable future. Economists have every reason to expect that in 20 or 30 years, the geopolitical makeup of the global economy is going to be completely different from what it is today.

Bloc Positions

Major Developed Powers: The US, European Union, and Various Asian Countries

While the United States took the liberty of establishing a fixed exchange rate system, the main goals of the European Union included the organization of a central bank and introducing the euro as common currency; thus, it takes less part in global monetary affairs, as opposed to the active United States. Among some of the Asian countries, Japan desires to bring its voting power more closely in line with its place in the world economy, since it is global leader in the field. However, such claims are weakened in light of the country’s lingering economic stagnation over the past decade.

Africa

Africa holds two Board seats in the voting system of IMF, which is not very much considering the size, population, resources, etc. of the entire continent. Furthermore, its power derives predominantly from Anglophone and Francophone countries, as opposed to independent nations.

Latin America and the Caribbean

Only three Board seats have been allocated to Latin America and the Caribbean, giving it limited power in the IMF. Furthermore, such power must be shared, as Spain holds the claim that it shares in the Latin American constituency with Mexico, Venezuela, and other Central American countries.

Possible Solutions

A potential route that the IMF could take in order to ensure complete impartiality in the distribution of power in the IMF would be to significantly simplify its voting system. This would entail a reversion to a simple majority voting system; furthermore, special supermajorities (such as the disproportionate power possessed by the United States, etc.) would need to be discontinued.

Questions to Consider

1. Is weighted voting an effective means to combat the inequality of voting power between countries?

2. On what basis should votes be weighted?

3. On what basis should countries be granted votes?

4. Considering the limitations in the power of Less Developed Countries (LDCs), should the distribution of voting power be amended to cater to the development of these countries? Should such exceptions exist in the system?

Works Cited

1.  http://www.npr.org/2011/05/23/136579286/what-does-the-imf-do-who-should-drive-it

2.  http://www.imf.org/external/np/exr/facts/quotas.htm

  1. http://www.imf.org/external/pubs/ft/pam/pam53/pam53.pdf

2