IMF Spring Meetings to focus on quota and governance reform

At this year's Spring Meetings of the International Monetary Fund (IMF) and the World Bank in Washington, DC, from 17 to 19 April, the main focus of discussions will be on the global economic outlook and the current state of play regarding the IMF's quota and governance reform. G20 finance ministers and central bank governors will also be convening on the fringes of the Spring Meetings.

Spring meetings of IMF and the World Bank 2015
Spring meetings of IMF and the World Bank 2015

In its most recent World Economic Outlook, the IMF forecasts global growth of 3.5% in 2015 and 3.8% in 2016. For the euro area, the IMF expects growth of 1.5% this year and 1.6% next year. According to IMF forecasts, German economic output is set to increase by 1.6% in 2015 and 1.7% in 2016.

While growth in Japan is expected to be more modest (1.0% in 2015 and 1.2% in 2016), the economic situation in the United States remains robust. There, the IMF is forecasting economic growth of 3.1% in 2015, with its economists expecting growth to continue at the same level in 2016.

More influence for emerging market countries

Alongside the World Economic Outlook, another important topic at the meetings will be the IMF's quota and governance reform. "The IMF is quite rightly pushing for the prompt implementation of the 2010 quota and governance reforms," said Bundesbank Executive Board Member Andreas Dombret in the run-up to the Spring Meeting.

The IMF adopted operational changes in 2010 that are meant to give emerging market countries more influence within the IMF. The reform has not yet been ratified by the United States, as Congressional approval is required. As the largest shareholder of the IMF, the United States holds a blocking minority. IMF Managing Director, Christine Lagarde, has recently announced that the IMF's 188 member countries are considering taking interim steps towards the reform objectives. Discussions will potentially take place at the Spring Meetings on the specific form that these interim steps might take. From the Bundesbank's perspective, such steps must be consistent with the 2010 reforms.

Mr Dombret stressed that reforms are important if member states are to be more adequately represented in the IMF and quota shares are to once again better correspond to voting rights. The financial situation of the IMF is not currently at risk from the non-implementation of the reforms. "Irrespective of the delays, the IMF's forward commitment capacity is sufficient at around €385 billion," Mr Dombret explained.

Furthermore, deliberations are scheduled at the Spring Meetings on the inclusion of the Chinese renminbi in the currency basket for special drawing rights (SDRs).

The special drawing right (SDR) is a unit of account that was introduced in 1969. The IMF can allocate SDRs to its members in order to avert a lack of liquidity. The value of an SDR corresponds to the market value of a weighted currency basket consisting of the four most important world currencies (US dollar, Japanese yen, pound sterling and euro).

"The Bundesbank welcomes China's efforts to add the renminbi to the SDR currency basket," said Mr Dombret. The prerequisite for this, he said, is that the renminbi meets the IMF's requirements for a freely usable currency.

G20 deliberates on financial sector regulation

The G20 finance ministers and central bank governors will also be gathering on the sidelines of the Spring Meetings. Financial sector regulation is one of the topics on the agenda. "The key challenge is still to improve cross-border cooperation so as to prevent market fragmentation and safeguard regulatory effectiveness and efficiency," said Mr Dombret. He sees particular need for action in three areas: first, the need for a credible resolution regime to contain the too-big-to-fail problem; second, further surveillance and regulation in the shadow banking industry; and third, the establishment of secure over-the-counter derivatives markets. The last point concerns over-the-counter trading in financial instruments such as certificates, options, futures and swaps. The lack of transparency and the complexity of these markets are regarded as potential sources of increased volatility and systemic risks.