HONG KONG — The Nov. 5 agreement on new shareholdings in the International Monetary Fund, which will see China become the third-biggest power in the institution, has been heralded as a triumph for a new global financial order that will challenge the old Western imperial dominance.
The IMF deal is only one brick in the new global financial structure to be created. The complicated agreement still has a few steps to go before becoming reality. The deal is based on a doubling of IMF quotas, thus permitting a realignment of the shares. It needs approval by the IMF governors and then by governments to lift the quotas to 476.8 billion special drawing rights (or $755.7 billion at current exchange rates). The IMF has set autumn 2012 as the target for completing the deal.
Since governments are the IMF shareholders and since government representatives sitting in Washington hammered out these compromises, you might expect they will be true to their word. But governments are not always masters of their legislatures. In the case of the United States, the biggest shareholder, there was a major change in its legislature this month. Given that the IMF needs a majority of 85 percent to seal any deal, and the U.S. has a veto with current voting shares of almost 17 percent, President Barack Obama has to work out when and how to present the proposal to Congress. It may help that the U.S. will keep its veto with 16.5 percent of the votes under the new deal.