2012 saw continued crisis in Europe, but also a turning point in the leadership selection of the

World Bank. The choice of Dr Jim Yong Kim as new president, who brings a background in

public health in developing countries, marked the first ever selection of a development

practitioner to lead the institution. However, large bureaucracies are slow to change, as the

International Monetary Fund (IMF) found out with its inability to extricate itself from the

morass developing in the eurozone.

The Bank's leadership selection process, despite being launched too late to signal a real

desire for an open, merit-based and transparent selection, ended up being more promising

than anticipated because of developing countries' attempts to inject some competition into the

process. But the tradition of the US nominee securing the presidency of the Bank was not in

doubt since it relies on a quid pro quo with the Europeans assuming leadership of the IMF, as

evidenced by former French finance minister Christine Lagarde's 2011 appointment. Dr Kim

beat Nigerian finance minister Ngozi Okonjo-Iweala and former UN under secretary-general

for economic affairs José Antonio Ocampo to seal another round of this international

'gentleman's agreement'.

Many hoped that Dr Kim would completely reorient the Bank's operations upon taking the

helm in July, but some viewed his first six months more as a public relations exercise,

including the Bank's public campaigns on Twitter asking how it can contribute to "bending

the arc of history" to "end poverty". By year end Dr Kim seemed to have won over staff and

shareholders to his stewardship without yet launching any new initiatives. Only in the final

weeks of 2012 did he begin to shake things up at the Bank by reorganising management.

In January, the Bank board approved the new Program-for-Results lending instrument, but

curtailed criticism by limiting its use to 5 per cent of total funding commitments per year for

the first two years. The long anticipated review of the Bank'ssocial and environmental

safeguards was finally launched in October. However, civil society groups criticised the

Bank's decision to push through a separate investment lending reform, which consolidates

policies, before the safeguards review was launched. The safeguards review is expected to

last for two years and advocates are pushing for issues such as indigenous rights,

resettlement, disability and human rights to receive particular attention.

On environmental issues, feeding into UN's Rio+20 'Earth Summit' in June and as a precursor

to the Mexico G20 summit, the Bank launched a report on 'inclusive green growth'. During

the summit it pushed for natural capital accounting, but critics saw this as an attempt at

privatisation of nature. The Bank also formally assumed its trusteeship of the UN Framework

Convention on Climate Change (UNFCCC) Green Climate Fund and continued to champion

the Climate Investment Funds. A review of its strategic framework on climate

change identified "increasing demand" for the Bank "to join, help forge or lead new climate

action coalitions". However, its own Independent Evaluation Group's assessment of the

Bank's track record on climate change adaptation concluded that it lacks "a reliable compass

to guide future adaptation efforts".

Furthermore, the Bank's proposed energy strategy disappeared completely from the agenda

in 2012. When Kim launched a new, but externally authored, Bank report on the latest

climate science in November, he failed to rule out its involvement in fossil fuels, calling the

Bank "the group of last resort in finding needed energy in countries that are desperately in

search of it". Controversy also remained around proposed coal power projects, such as

in Kosovo. The Bank also continued to push other controversial energy options, such as large

scale hydro.

The International Finance Corporation (IFC, the Bank's arm that lends to the private

sector), was also given new leadership in 2012. The October appointment of Chinese

national and former investment banker Jin-yong Cai broke a string of European appointments

and demonstrated the Bank's attempts to keep new global powers like China engaged. Cai's

financial sector background is unlikely to end to the IFC's increasingly controversial use of

financial intermediaries, particularly private equity funds, as a means of channelling money.

On the policy front, internal opposition seems to have scuppered an attempt within the IFC

for development outcomes to replace financial returns as the main metric on which staff

incentives are based. Poverty reduction seemed further than ever from the IFC's intentions as

it funded scores of controversial projects, such as a massive iron ore mine in Guinea andmine

in an indigenous area of the Philippines. Its investments in extractive industries garnered

specific attention because of the police killings that ended large protests against IFC-

investees Lonmin in South Africa and Yanacocha in Peru. The IFC also faced international

criticism for its involvement in controversial coal projects, such as the Tata Mundra power

plant in India.

The Bank Group's involvement in 'land grabs' received increased attention, as the IFC's

accountability mechanism, the Compliance Advisor/Ombudsman, started investigating a

complaint about activities in Uganda. Later in the year, NGO Oxfam launched a campaign for

a moratorium of the Bank's large scale land acquisition, but while the Bank accepted that its

"practices need to ensure more transparent and inclusive participation in cases of land

transfers", it rejected the demand.

Campaigners finally cheered some success on jobs and labour. The Bank's World

Development Report on jobs marked a real departure from past Bank practice as it focussed

on good jobs and the ways to promote them. This included research which undermined the

IFC's Doing Business Report message that labour deregulation is always beneficial. The

resultant criticism of Doing Business grew to such intensity that Dr. Kim ordered an

independent review of the report which will return its findings in 2013.

The IMF ended 2012 much as it began, lending more money to European countries,

downgrading its expectations for their economic performance, and looking to the Middle

East and North African region as the most significant opportunity for future growth and

influence. By year-end, the mooted $1 billion loan for Egypt had grown to $4.8 billion while

street protests challenged both constitutional changes and economic reforms contained to the

proposed agreement.

The IMF's role in the Troika of eurozone lenders, with the European Central Bank and

European Commission, hascontinued to generate controversy. In March, the IMF signed a

new agreement with Greece, worth an extra $36 billion. One long-time staff member resigned

in disgust at the Fund's "incompetence" and "failures", accusing it of "European bias". A mea

culpa of sorts did follow as the October World Economic Outlook sought to explain why the

IMF has consistently over-estimated the benefits of its medicine, triggering a debate about

whether austerity and cuts imposed as conditions of lending have been counter-productive,

something civil society has contended for decades. Applying its new enlightened attitude to

Greece meant the Fund fell out with key Troika and European partners in December as it

came to insist upon a degree of write-downs for Greece's unsustainable debts.

While the challenges to the IMF's role and legitimacy grew, the Fund determined that its

record on lending and conditionality was overall rather good - notably excluding all of the

controversial European lending which represent the bulk of its current loans. Furthermore, the

October deadline for reforms to the quota determining countries' representation in Fund

governance, agreed with developing countries in 2010, passed without action leading to

vehement developing country criticism and disappointment. More irritation followed the

IMF's long-awaited institutional view oncapital flow management, which purported to end

the bias to capital account liberalisation which critics have long blamed for exacerbating

developing country crises. Instead of a U-turn, it was described as only a "baby-step".

As the year ended, the IMF's independent auditor, the Independent Evaluation Office,

concluded that the Fund's advice to countries with large reserves, notably China, betrayed

what press commentators interpreted as outright "bias" in favour of US policy preferences for

its developing country rival. A vigorous response from staff and management duly followed.

Roles of the IMF and World Bank

The IMF and World Bank were both created at the end of World War II in a political climate

that is very different from that of today. Nevertheless, their roles and modalities have been

suitably updated to serve the interests of those that benefit from neoliberalism. The

institutional structures of the IMF and World Bank were framed at an international

conference in Bretton Woods, New Hampshire. Initially, the primary focus of the IMF was to

regulate currency exchange rates to facilitate orderly international trade and to be a lender of

last resort when a member country experiences balance of payments difficulties and is unable

to borrow money from other sources. The original purpose of the World Bank was to lend

money to Western European governments to help them rebuild their countries after the war.

In later years, the World Bank shifted its attention towards development loans to third world

countries.

Immediately after World War II, most western countries, including the US, had ‘New Deal’

style social contracts with sufficient welfare provisions to ensure ‘stability’ between labor

and capital. It was understood that restrictions on international capital flow were necessary to

protect these social contracts. The postwar ‘Bretton Woods’ economic system which lasted

until the early seventies, was based on the right and obligation of governments to regulate

capital flow and was characterized by rapid economic growth. In the early seventies, the

Nixon administration unilaterally abandoned the Bretton Woods system by dropping the gold

standard and lifting restrictions on capital flows. The ensuing period has been marked by

dramatically increased financial speculation and low growth rates.

Although seemingly neutral institutions, in practice, the IMF and World Bank end up serving

powerful interests of western countries. At both institutions, the voting power of a given

country is not measured by, for example, population, but by how much capital that country

contributes to the institutions and by other political factors reflecting the power the country

wields in the world. The G7 plays a dominant role in determining policy, with the US,

France, Germany, Japan and Great Britain each having their own director on the institution’s

executive board while 19 other directors are elected by the rest of the approximately 150

member countries. The president of the World Bank is traditionally an American citizen and

is chosen with US congressional involvement. The managing director of the IMF is

traditionally a European. On the IMF board of governors, comprised of treasury secretaries,

the G7 have a combined voting power of 46%.

The power of the IMF becomes clear when a country gets into financial trouble and needs

funds to make payments on private loans. Before the IMF grants a loan, it imposes conditions

on that country, requiring it to make structural changes in its economy. These conditions are

called ‘Structural Adjustment Programs’ (SAPs) and are designed to increase money flow

into the country by promoting exports so that the country can pay off its debts. Not

surprisingly, in view of the dominance of the G7 in IMF policy making, the SAPs are highly

neoliberal. The effective power of the IMF is often larger than that associated with the size of

its loans because private lenders often deem a country creditworthy based on actions of the

IMF. The World Bank plays a qualitatively different role than the IMF, but works tightly

within the stringent SAP framework imposed by the IMF. It focuses on development loans

for specific projects, such as the building of dams, roads, harbors etc that are considered

necessary for ‘economic growth’ in a developing country. Since it is a multilateral institution,

the World Bank is less likely than unilateral lending institutions such as the Export Import

Bank of the US to offer loans for the purpose of promoting and subsidizing particular

corporations. Nevertheless, the conceptions of growth and Economic well being within the

World Bank are very much molded by western corporate values and rarely take account of

local cultural concerns. This is clearly exhibited by the modalities of its projects, such as the

‘Green Revolution’ in agriculture, heavily promoted in the third world by the World Bank in

the sixties and seventies. The ‘Green Revolution’ refers to the massive industrialization of

agriculture, involving the replacement of a multitude of indigenous crops with a few high-

yielding varieties that require expensive investments of chemicals, fertilizers and machinery.

In the third world, the ‘Green Revolution’ was often imposed on indigenous populations with

reasonably sustainable and self sufficient traditions of rural agriculture. The mechanization of

food production in third world countries, which have a large surplus labor pool, has led to the

marginalization of many people, disconnecting them from the economy and exacerbating

wealth disparity in these countries. Furthermore, excessive chemical agriculture has led to

soil desertification and erosion, increasing the occurrence of famines. While the ‘Green

Revolution’ was a catastrophe for the poor in third world countries, western chemical

corporations such as Monsanto, Dow and Dupont fared very well, cashing in high profits and

increasing their control over food production in third world countries. Today, the World Bank

is at it again. This time it is promoting the use of genetically modified seeds in the third world

and works with governments to solidify patent laws which would grant biotech corporations

like Monsanto unprecedented control over food production. The pattern is clear, whether

deliberate or nor, the World Bank serves to set the stage for large trans-national corporations

to enter third world countries, extract large profits and then leave with carnage in their wake.

While the World Bank publicly emphasizes that it aims to alleviate poverty in the world,

imperialistic attitudes occasionally emerge from its leading figures. In 1991, then chief

economist Lawrence Summers (now US Secretary of the Treasury) wrote in an internal

memo that was leaked: Just between you and me, shouldn’t the World Bank be encouraging

more migration of the dirty industries to the LDCs [less developed countries]? ... The

economic logic behind dumping a load of toxic waste in the lowest wage country is

impeccable, and we should face up to that ... Under-populated countries in Africa are vastly

under-polluted; their air quality is probably vastly inefficiently low compared to Los Angeles

or Mexico City. The concern over an agent that causes a one-in-a-million chance in the odds

of prostate cancer is obviously going to be much higher in a country where people survive to

get prostate cancer than in a country where under-five mortality is 200 per thousand. And

thistle thought that the World Bank tried to extend lives in developing countries, not take

advantage of low life expectancy.

How do countries get into financial troubles, the Debt Crisis. The most devastating program

imposed by the IMF and the World Bank on third world countries are the Structural

Adjustment Programs. The widespread use of SAPs started in the early eighties after a major

debt crisis. The debt crisis arose from a combination of (i) reckless lending by western

commercial banks to third world countries, (ii) mismanagement within third world countries

and (iii) changes in the international economy. During the seventies, rising oil prices

generated enormous profits for petrochemical corporations. These profits ended up in large

commercial banks which then sought to reinvest the capital. Much of this capital was

invested in the form of high risk loans to third world countries, many of which were run by

corrupt dictators. Instead of investing the capital in productive projects that would benefit the

general population, dictators often diverted the funds to personal Swiss bank accounts or used

them to purchase military equipment for domestic repression. This state of affairs persisted

for a while, since commodity prices remained stable and interest rates were relatively low

enabling third world countries to adequately service their debts. In 1979, the situation

changed, however, when Paul Volker, the new Federal Reserve Chairman, raised interest

rates.

This dramatically increased the cost of debtor countries’ loans. At the same time, the US was

heading into a recession and world commodity prices dropped, tightening cash flows

necessary for debt payment. The possibility that many third world countries would default on

their debt payments threatened a major financial crisis that would result in large commercial

bank failures. To prevent this, powerful countries from the G7 stepped in and actively used

the IMF and World Bank to bail out third world countries. Yet the bail-out packages were

contingent upon the third world countries introducing major neoliberal policies (i.e. SAPs) to

promote exports.

Examples of SAP prescriptions include:

- an increase in ‘labor flexibility’ which means caps on minimum wages, and policies to

weaken trade unions and worker’s bargaining power.

- tax increases combined with cuts in social spending such as education and health care, to

free up funds for debt repayment.

- privatization of public sector enterprises, such as utility companies and public transport

- financial liberalization designed to remove restrictions on the flow of international capital in

and out of the country coupled with the removal of restrictions on what foreign corporations

and banks can buy.

Despite almost two decades of Structural Adjustment Programs, many third world countries

have not been able to pull themselves out of massive debt. The SAPs have, however, served

corporations superbly, offering them new opportunities to exploit workers and natural

resources.

As Prof. Chomsky often says, the debt crisis is an ideological construct. In a true capitalist

society, the third world debt would be wiped out. The Banks who made the risky loans would

have to accept the losses, and the dictators and their entourage would have to repay the

money they embezzled. The power structure in society however, prevents this from

happening. In the west tax payers end up assuming the risk while the large banks run off with

the high profits often derived from high risk loans. In the third world, the people end up

paying the costs while their elites retire in the French Riviera. It is important to realize that

the IMF and World Bank are tools for powerful entities in society such as trans-national

corporations and wealthy investors. The Thistle believes that massive world poverty and

environmental destruction is the result of the appalling concentration of power in the hands of

a small minority whose sights are blinded by dollar signs and whose passions are the

aggrandizement of ever more power. The Thistle holds that an equitable and democratic

world centered around cooperation and solidarity would be more able to deal with

environmental and human crises.

Modest Growth Pickup in 2013, Projects IMF

Global growth to reach 3.5 percent in 2013, from 3.2 percent in 2012

Crisis risks abating, although downside risks remain significant

Emerging markets, developing countries, United States, main sources of growth

Global growth will strengthen gradually in 2013, says the IMF in an update to its World

Economic Outlook (WEO), as the constraints on economic activity start to ease this year.

But the recovery is slow, and the report stressed that policies must address downside risks

to bolster growth. Policy actions have lowered acute crisis risks in the euro area and the

United States, the report noted. Japan’s stimulus plans will help boost growth in the near

term, pulling the country out of a short-lived recession. Effective policies have also helped

support a modest growth pickup in some emerging market and developing economies.

And recovery in the United States remains broadly on track. Global growth is projected to

strengthen to 3.5 percent this year, from 3.2 percent in 2012—a downward revision of just

0.1 percentage point compared with the October 2012 WEO.

If crisis risks do not materialize and financial conditions continue to improve, global

growth could even be stronger than forecast, the report said. But downside risks remain

significant, including prolonged stagnation in the euro area and excessive short-term fiscal

tightening in the United States.

Modest improvement in conditions

The report observed that economic conditions improved slightly in the third quarter of

2012, driven by performance in emerging market economies and the United States.

Financial conditions also improved, as borrowing costs for countries in the euro area

periphery fell, and many stock markets around the world rose. But activity in the euro area

periphery was even softer than expected, with some of that weakness spilling over to the

euro area core. And Japan moved into recession in the second half of last year.

Forecasts broadly unchanged, except for euro area

The IMF downgraded its near-term forecast for the euro area, with the region now

expected to contract slightly in 2013. The report observed that even though policy actions

have reduced risks and improved financial conditions for governments and banks in the

periphery economies, those had not yet translated into improved borrowing conditions for

the private sector. Continuing uncertainty about the ultimate resolution of the global

financial crisis, despite continued progress in policy reforms, could also dampen the

region’s prospects.

The IMF forecasts growth of 2 percent in the United States this year, broadly unchanged

from the October 2012 WEO. A supportive financial market environment and the

turnaround in the housing market will support consumption growth. The near-term

outlook for Japan is also unchanged despite that country’s slipping into recession, because

the stimulus package and further monetary easing will boost growth. Emerging market and

developing economies are expected to grow by 5.5 percent this year, broadly as predicted

in the October 2012 WEO.

Policies must urgently address risks

The report noted that the euro area continues to pose a large downside risk to the global

outlook. While a sharp crisis has become less likely, “the risk of prolonged stagnation in

the euro area would rise if the momentum for reform is not maintained,” the IMF said. To

head off this risk, the report stressed, adjustment programs by the periphery countries need

to continue, and must be supported by the deployment of “firewalls” to prevent contagion

as well as further steps toward banking union and fiscal integration.

For the United States, the IMF stressed that “the priority is to avoid excessive fiscal

consolidation in the short term, promptly raise the debt ceiling, and agree on a credible

medium-term fiscal consolidation plan, focused on entitlement and tax reform.” The report

also emphasized the importance of a credible medium-term fiscal strategy in Japan.

Without it, the IMF cautioned that “the stimulus package carries important risks.

Specifically, the stimulus-induced recovery could prove short lived, and the debt outlook

significantly worse.” For emerging market and developing economies, the report

underscored the need to rebuild policy room for maneuver. It noted that “the appropriate

pace of rebuilding must balance external downside risks against risks of rising domestic

imbalances.”

IMF’s Response to the Global Economic Crisis

Since the onset of the global economic crisis in 2007, the IMF has mobilized on many

fronts to support its 188 member countries. It increased and deployed its lending firepower,

used its cross-country experience to offer policy solutions, and introduced reforms that

made it better equipped to respond to countries' needs.

Creating a crisis firewall. 

To meet ever increasing financing needs of countries hit by the global financial crisis and

help strengthen global economic and financial stability, the Fund has greatly bolstered its

lending capacity since the onset of the global crisis. It has done so both by obtaining

commitments to increase quota subscriptions of member countries—the IMF's main

source of financing—and securing large temporary borrowing agreements from member

countries, including recent pledges of $456 billion.

Stepping up crisis lending. 

The IMF has overhauled its general lending framework to make it better suited to country

needs giving greater emphasis on crisis prevention, and has streamlined conditions

attached to loans. Since the start of the crisis, it has committed well over $300 billion in

loans to its member countries.

Helping the world’s poorest.

The IMF undertook an unprecedented reform of its policies toward low-income

countries and quadrupled its concessional lending.

Sharpening IMF analysis and policy advice.

The IMF’s monitoring, forecasts, and policy advice, informed by a global perspective and

by experience from previous crises, have been in high demand. The IMF is also

contributing to the ongoing effort to draw lessons from the crisis for policy, regulation,

and reform of the global financial architecture, including through its work with the Group

of Twenty (G-20) industrialized and emerging market economies.

Reforming the IMF’s governance. 

To strengthen its legitimacy, in November 2010, the IMF agreed on wide-ranging

governance reforms to reflect the increasing importance of emerging market countries.

The reforms, expected to be effective by October 2012, also ensure that smaller

developing countries will retain their influence in the IMF.

Reforming the IMF’s lending framework

In an effort to better support countries during the global economic crisis, the IMF

beefed up its lending capacity and approved a major overhaul of how it lends money by

offering higher amounts and tailoring loan terms to countries’ varying strengths and

circumstances.

Credit line for strong performers 

The Flexible Credit Line (FCL), introduced in April 2009 and further enhanced in

August 2010, is a lending tool for countries with very strong fundamentals that

provides large and upfront access to IMF resources, as a form of insurance for crisis

prevention. There are no policy conditions to be met once a country has been approved

for the credit line. Colombia, Mexico, and Poland have been provided combined access

of over $100 billion under the FCL (no drawings have been made under these

arrangements). FCL use has been found to lead to lower borrowing costs and increased

room for policy maneuver.

Access to liquidity on flexible terms

Heightened regional or global stress can affect countries that would not likely be at risk

of crisis. Providing rapid and adequate short-term liquidity to such crisis bystanders

during periods of stress could bolster market confidence, limit contagion, and reduce

the overall cost of crises. The Precautionary and Liquidity Line (PLL) is designed to

meet the liquidity needs of member countries with sound economic fundamentals but

with some remaining vulnerabilities—Macedonia and Morocco have used the PLL.

Reformed terms for IMF lending

Structural performance criteria have been discontinued for all IMF loans, including for

programs with low-income countries. Structural reforms will continue to be part of

IMF-supported programs, but have become more focused on areas critical to a

country’s recovery.

Emphasis on social protection

The IMF is helping governments to protect and even increase social spending,

including social assistance. In particular, the IMF is promoting measures to increase

spending on, and improve the targeting of, social safety net programs that can mitigate

the impact of the crisis on the most vulnerable in society.

Helping the world’s poorest

In response to the global financial crisis, the IMF undertook an unprecedented reform

of its policies toward low-income countries. As a result, IMF programs are now more

flexible and tailored to the individual needs of low-income countries, with streamlined

conditionality, higher concessionality and more emphasis on safeguarding social

spending.

Increase in resources

 

Resources available to low-income countries through the Poverty Reduction and

Growth Trust over the period 2009–2014 were boosted to $17 billion, consistent with

the call by G-20 leaders in April 2009 of doubling the IMF’s concessional lending

capacity and providing $6 billion additional concessional financing over the next two

to three years. The IMF’s concessional lending to low-income countries amounted to

$3.8 billion in 2009, an increase of about four times the historical levels. In 2010 and

2011, concessional lending reached $1.8 billion and $1.9 billion respectively.

More flexibility

Partly because of the crisis, the IMF has generally factored in higher deficits and

spending, and has made financial assistance programs more flexible. On average, for

all of sub-Saharan Africa, fiscal deficits widened by about 2 percent of GDP in 2009.

Establishment of a Post-Catastrophe Debt Relief (PCDR) Trust

This allows the IMF to join international debt relief efforts for very poor countries that

are hit by the most catastrophic of natural disasters. PCDR-financed debt relief

amounted to $268 million in 2010.

Creating a crisis firewall

As a key part of efforts to overcome the global financial crisis, the Group of Twenty

industrialized and emerging market economies (G-20) agreed in April 2009 to increase

borrowed resources available to the IMF (complementing its quota resources) by up to

$500 billion (which tripled the total pre-crisis lending resources of about $250 billion)

to support growth in emerging market and developing countries.

In April 2010, the Executive Board adopted a proposal on an expanded and more

flexible New Arrangements to Borrow (NAB), by which the NAB was expanded to

about SDR 367.5 billion (about $560 billion), with the addition of 13 new participating

countries and institutions, including a number of emerging market countries that made

significant contributions to this large expansion. On November 15, 2011, the National

Bank of Poland joined the NAB as a new participant, bringing the total to about

SDR 370 billion (about $570 billion) and the number of new participants to 14 (once

all new participants have joined).

In December 2011, euro area member countries committed to providingadditional

resources to the IMF of up to 150 billion euro (about $200 billion). Following the

request of the IMF’s membership last year through the International Monetary and

Financial Committee and the general support by the G-20 leaders at the Cannes

summit, the IMF Executive Board discussed the adequacy of the Fund’s resources

in January 2012, with a view to increasing them through new bilateral borrowing.

Member countries have pledged $456 billion in additional resources to boost the

Fund’s firepower.

The 14th General Review of Quotas, approved in December 2010, will double the

IMF’s permanent resources to SDR 476.8 billion (about $737 billion). It is targeted to

become effective by the Annual Meetings in 2012. There will be a rollback in the NAB

credit arrangements from SDR 370 billion to SDR 182 billion which will become

effective when participants pay for their 14th Review quota increases.  

In addition to increasing the Fund’s own lending capacity, in 2009, the membership

agreed to make a general allocation of SDRs equivalent to $250 billion, resulting in a

near ten-fold increase in SDRs. This represents a significant increase in own reserves

for many countries, including low-income countries.

Sharpening IMF analysis and policy advice

The IMF is working closely with governments and other international institutions to try

and prevent future crises. Risk analysis has been enhanced, including by taking a cross-

country perspective, and early warning exercises are being carried out jointly with the

Financial Stability Board. Analyses on linkages between the real economy, the financial

sector, and external stability are being strengthened. Work has also been done on mapping

and understanding the implications of rising financialand trade interconnectedness for

surveillance (including spillovers or how economic policies in one country can affect

others) and for lending to strengthen the global financial safety net.

Reform of IMF governance to better reflect the global economy

A top priority for the IMF’s legitimacy and effectiveness has been the completion

of governance reform. On December 15, 2010, the Board of Governors approved far-

reaching governance reforms under the 14th   General Review of Quotas . The package

includes a doubling of quotas, which will result in more than a 6 percentage point shift

in quota share to dynamic emerging market and developing countries while protecting

the voting shares of the poorest member countries. The reform will also lead to a more

representative, fully-elected Executive Board.

To become effective, an amendment to the Articles of Agreement will need to be

accepted by three-fifths of the member countries, having 85 percent of the total voting

power and members having no less than 70 percent of total quotas on

November 5, 2010 will need to consent to their quota increases.

The agreed package builds on quota and voice reforms agreed in April 2008 and

became effective on March 3, 2011. Under these reforms, 54 members received an

increase in their quotas—with China, Korea, India, Brazil, and Mexico as the largest

beneficiaries. Another 135 members, including low-income countries, saw an increase

in their voting power as a result of the increase in basic votes, which will remain a

fixed percentage of total votes. Combined with the 14th Review, the shift in quota

share to dynamic emerging market and developing countries will be 9 percentage

points.