IMF: Swiss seat wobbles

Many developing countries have again become dependent on International Monetary Fund (IMF) credit since the onset of the global financial and economic crisis. But the countries of the South are clearly under-represented within the principal IMF bodies that decide policy conditions. This explains why the Fund continues to tie its loans to tough savings measures in many cases. Although three quarters of the world's population live in developing countries, their share of voting rights at the IMF represent a mere 34 per cent. Of the 24 Executive Directors, they account for a mere 11.

In the current debate about the increase in member contributions (country quotas) the countries in the South are thus calling for an increase in their voting rights. Furthermore, in future they would like to see important decisions being taken not just by a voting majority but also a Member State majority.
The industrialised countries are opposed to this. Just as little unity has been achieved so far on the reform of the current majority rules as on the review of quota distribution and voting rights. To date the industrialised countries have agreed to a 5-per cent quota reallocation to the strongest under-represented countries. That would only negligibly expand the voting weight of the South.

Switzerland could lose out

Switzerland could be amongst the losers in any reallocation of voting rights. It is one of the 10 countries that are distinctly over-represented in the IMF. Besides, uncertainty also surrounds Switzerland's seat on the Executive Board in the light of the USA proposal to scale back the Board to the 20 seats foreseen in the statutes and for common representation of EU countries in the so-called voting constituencies. Poland, hitherto a member of Switzerland's voting constituency, could well switch to an EU group as a result.

The Federal Council has declared the preservation of Switzerland's influence in the IMF and World Bank to be a foreign policy priority. Particularly because Switzerland is not a member of the G20, it should be able to represent its foreign policy interests at least in the two Bretton Woods institutions. At the IMF autumn meeting in Istanbul, both Finance Minister Merz and National Bank Chief Roth spoke out for an expansion of bilateral payments into the Fund's reserve assets, the so-called New Arrangements to Borrow (NAB). The financial situation of the IMF could be improved in this way without need for a comprehensive quota reform. The Swiss strategy is in conflict with the interests of developing countries, however. The latter made it clear in Istanbul that the scaling up of NAB should not be a substitute for quota revisions and the redistribution of voting rights that have been called for.

Ostrich-like policy

Furthermore, Federal Councillor Merz advocates the expansion rather than the scaling back of the Executive Board. His proposal stands very slim political chances of success. For now, the Swiss Administration seems to be anticipating that there will be no reform of the Executive Board. Yet that could be illusory. Because maintaining the current 24 seats requires 85 per cent of total votes at each election, the USA could even use its blocking minority unilaterally to impose a reduction in the size of the Board. It would therefore behove Switzerland proactively to forge new alliances for a future voting group.

Prospective candidates would also include emerging and developing countries. To win them over, Switzerland would need to represent a decidedly different policy in the IMF. It would have to advocate more strongly for the country majority that has long been demanded by the South in important voting exercises and for the elimination of stringent credit conditionality.

Mark Herkenrath, Alliance Sud

Article published in: Alliance Sud News No.  62, Winter 2009/10