While the International Monetary Fund (IMF) is undergoing a process of reform and restructuring amid global and regional crises, Turkey, along with other emerging economies, is eyeing a bigger voice in the IMF’s decision-making body. With new changes adopted in December 2010 at a meeting of the Board of Governors, the highest decision-making body of the IMF, Turkey has not only increased its quota in the IMF but also gotten a chance to put a Turk in one of the IMF executive director chairs.
The changes to the Articles of Agreement governing the IMF were submitted to the Turkish Parliament for approval on Jan. 9, 2012 and adopted by the government on Feb. 15, 2012 in the Foreign Relations Commission. It currently sits on the agenda of the General Assembly for a debate before likely approval. Turkey, a G-20 member of rich and emerging economies, is an enthusiastic IMF member that wishes to see these changes become reality as it will give a greater voice to Turkey in the management of the fund as well as a chance to contribute to shaping global financial policies.
Turkey, Europe’s fastest-growing economy, already received a boost in 2008 when the IMF revised quotas for 54 of its member countries, including Turkey, whose quota was increased from SDR 1.2 billion in IMF special currency to SDR 1.45 billion. Since the quota largely determines a member’s voting power in IMF decisions, Turkey’s voting power was also increased from 0.55 percent to 0.61 percent. But the real lift came two years later when the IMF approved a package of far-reaching reforms for IMF quotas and governance rules during the 14th General Review of Quotas. Accordingly Turkey’s quota jumped to SDR 4.6 billion (approximately $7.2 billion) from SDR 1.45 billion and its voting power increased to 0.98 percent, making Turkey the second most-powerful IMF country in its group, which covers the Middle East and Malta. Turkey ranks fourth among countries that have had the largest increase in their quotas since the 2008 reform.
The IMF claims the reform package will bring a major realignment of quota shares to better reflect the changing influence of IMF member countries in the global economy. Though the current changes are definitely an improvement, I think the IMF is playing a game of “catch-up,” trailing behind fast-paced developments in the economies of its member countries, while the countries that currently hold large quotas show reluctance to yield to the emerging economies of the world. While there are some changes proposed for the senior positions, the IMF should also adopt drastic changes in its employment policies, bringing more diversity to the IMF staff, even at the middle and lower levels.
Now what do all these changes mean for Turkey? New increased quotas will move Turkey to 20th place from 36th place, where it currently stands among shareholder members of the IMF. In other words, Turkey will be, for the first time, certified as one of the 20 largest shareholders in the IMF, replacing oil-exporting Venezuela. Accordingly, voting shares for Turkey also increased from 0.61 to 0.95 percent. In contrast, China will become the third-largest member country in the IMF and four emerging economies — Brazil, China, India and Russia — will be among the 10 largest shareholders.
Another benefit for Turkey comes from reforms adopted by the IMF Executive Board. Economically advanced European countries agreed to give up two seats on the board to be filled by two emerging countries. Since Turkey is an emerging economy, it would have a pretty good shot at winning one chair, running in a constituency where it has influence. If that happens, Turkey would be represented on the Executive Board for the first time in IMF history. This reform is scheduled to take effect by this October’s Annual Meeting of the World Bank Group and the IMF.
The current IMF board, which has 24 executive directors (five appointed and 19 elected), will be converted into an all-elected board, giving more clout to countries like Turkey. Turkey would be able form its own constituency and compete with others on a much more level playing field than in the past. The Board of Governors would adopt regulations to govern the process by which the Executive Board is elected with special emphasis on avoiding an excessive concentration of voting power in multi-country blocs.
Turkey is determined to pursue the commitments made to reform the governance rules and quota shares in the IMF and is lobbying hard to keep the issue on top of the agenda. During the upcoming G-20 summit, to be held in Mexico in June, one of the five top priorities for the Mexican presidency actually focuses on “improving the international financial architecture in an interconnected world.” Turkey, along with Australia, co-chairs the International Financial Architecture Working Group that seeks to tackle reform issues at the IMF.
During the briefing at the G-20 Meeting of Finance Ministers and Central Bank Governors in Mexico City on Feb. 26, 2012, Turkey’s economy czar and Deputy Prime Minister Ali Babacan emphasized to his colleagues that the timely completion of the IMF quota and governance reforms is very important and called on member states to ratify changes to the IMF agreement. In a final communiqué approved at the end of this meeting, members pledged to continue working towards reforming quotas and governance rules of the IMF in line with the commitments made in Seoul and Cannes G-20 summits.
Once three-fifths of the IMF member states, who have 85 percent of the total voting power, approve amendments to IMF agreement, the 2010 Governance and Quota Reform will be in effect. This will be followed by a more comprehensive review of the quota formula that will better reflect the economic influence of IMF member countries by January 2013. The next general review of quotas will be completed by January 2014.
We have to recall that the IMF Managing Director and Former French Finance Minister Christine Lagarde promised to give top priority to completing the IMF reforms to give greater weight to emerging economies during her campaign for the position last year. She will be held accountable for that pledge during her five-year tenure in the top position at the IMF. Lagarde must turn the IMF into a more transparent structure with much better functioning and democratic governance.