The Bretton Woods agreement, 70 years old in July, had established institutions to promote law and order in international economic relations: the International Monetary Fund (IMF) to promote macroeconomic stability, the GATT (and its successor, the World Trade Organisation or WTO) to ensure an open trading environment, and the World Bank to provide development finance for poverty reduction. The smooth operation of this rules-based global economic architecture led by the US contributed to the unprecedented economic growth and prosperity worldwide in the post-World War II period.

In more recent times, however, this architecture has lost much of its legitimacy because world trade and GDP shares of emerging markets especially those in Asia have risen more rapidly than their shares in IMF quotas. For example, China accounts for 13.6 per cent of the global economy (in terms of purchasing power parity) but its voting power is only 3.8 per cent less than that of the Benelux countries.

It is not that the IMF management and Washington have not made the effort. In November 2010, the IMF management had proposed what it labelled as the “most fundamental governance overhaul in the Fund’s 65-year history”. If approved the proposal would have reduced some of the quota misalignment at the IMF, fulfilled the G20 pledge to transfer six per cent of the quota to dynamic emerging markets, and given China the third largest voice in the IMF. However, despite the strong support of President Barack Obama, the proposal remains stuck in the US Congress. The cost of this delay is rising.

… Pradumna B. Rana is Associate Professor at the S. Rajaratnam School of International Studies, Nanyang Technological University