Identity Adrift: OSCE’s Crisis in Ukraine

By Christopher Morrow and Matthew Mitchell

Note: A published version of this op-ed appears here.

The Organization for Security and Cooperation in Europe (OSCE) needs to fundamentally reinvent itself or face increasing relegation to the periphery of international affairs. While Putin continues his Ukrainian tour, the OSCE wilts under the pressure of its own ineptitude. As the largest regional security organization in the world, the need to assert itself in the face of the Russian threat to Ukrainian sovereignty has never been more apparent. Why has the OSCE been unable to uphold one of the primary components of its mission statement, to prevent conflict and seek immediate resolution when conflict arises? The principle reason is that the OSCE offers little in terms of benefits to Russia that it cannot accomplish unilaterally. In order to rectify this predicament, the organization needs to promote the advantages of its cooperative security approach, information sharing capabilities, and ability to act as a forum for dialogue between Russia and the United States.

Beginning as the Helsinki Act in 1975, the OSCE (formerly the CSCE before 1995) facilitated the need for dialogue between East and West. As the Cold War ended, so did the need for this role, thus ushering in the next era for the organization. This next phase set in motion field operation initiatives designed to monitor and promote democratic institutions in the newly formed countries of Eastern Europe. The major drawback to specializing in the democratization of Eastern Europe was that by the close of the 1990s these countries had almost completely assimilated with the EU and NATO, calling into the question the relevance of the OSCE. The post 9/11 environment marked a transition to meet the new needs of global security and counter the obstacles posed by EU and NATO enlargement. The OSCE shifted their focus away from EU accession countries and toward establishing a connection with Central Asia, attempting to carve a niche in counter terrorism, policing capability, and politico-military issues: small arms, light weapons, and destruction of arms and ammunition. Regardless, EU and NATO expansion policies stretching over the Balkans and Commonwealth of Independent States have still undercut the OSCE’s activities and have proven detrimental to its overall effectiveness. The membership overlap between these organizations can often lead to contradictory obligations among member states.

Recent Russian aggression toward Ukraine—the annexation of Crimea, protests engulfing the eastern portions of the country, and accusations Ukraine is being turned into a “slave territory”—demands OSCE action. Russian expectations of the OSCE have shifted according to the divergent approaches of the cooperative Boris Yeltsin and the confrontational Vladimir Putin; whose disillusionment formed following the OSCE’s inability to act as a vehicle for preventing NATO’s eastward expansion and military involvement in Kosovo. At the Vienna Ministerial Meeting, the first major OSCE meeting since the departure of Yeltsin, Putin lambasted the OSCE by criticizing their direction and relevance due to institutional dysfunction. Russia has been severely critical of EU members’ focus on democracy within the OSCE and views their intentions with suspicion, calling the EU’s democracy promotion efforts ‘beyond what participating states are paying for.’ Consequently, Russia no longer views the OSCE as a counter to NATO, but utilizes it in an instrumental, selective, and limited manner, primarily to legitimize viewpoints, exchange security information, draw attention to concerns, block unfavorable decisions, constrain actions, and cooperate on important ‘low politics’ challenges.

The OSCE has diminished in influence for three key reasons. First, Russia’s contentious and often obstructionist relationship with the organization. Second, the redefining of security in the post 9/11 era has allowed NATO to expand its definition of security and encroach on traditional OSCE territory. Third, the overlapping and often contradictory commitments of member states between the OSCE, NATO, and the EU have caused the organization to marginalize while elevating the EU and NATO.

In order to reverse this diminishing status, the OSCE needs to make advances in three areas. 1) Given Putin’s meager expectations of the OSCE and US favoritism toward NATO, it is imperative that the OSCE promote its existing, but criminally underutilized cooperative security approach—to bring together military and nonmilitary bodies to advocate conflict prevention, stabilization, and reconstruction. 2) President Obama was hoping to use the OSCE as a channel to prevent the Russian acquisition of Crimea in the early stages, but ultimately failed. Despite this failure, the action points to an opportunity for the organization to augment its role as a forum for dialogue between the two nations. 3) Russia still views the OSCE as a valuable information provider. The uncertainty surrounding the crisis in Ukraine parallels the identity predicament the OSCE faced in the post-9/11 period. Unless it decides to reinvent itself once again, the OSCE risks a continued descent toward obsolescence.  

The European Bank for Reconstruction and Development: Stuck in Transition?

By Danny Dubbaneh and James Janos

Note: A published version of this op-ed appears here.

The European Bank for Reconstruction and Development (EBRD) was created in 1991 as a multilateral development bank (MDB) to help former Soviet states in Central and Eastern Europe (CEE) transition to market-based democracies. In roughly two decades of its existence the EBRD has failed to successfully transition the states it works with, and consequently failed to fulfill its mandate. In order to be a more effective MDB the EBRD needs to invest in more effective aid channels.

There are many reasons the European Bank for Reconstruction and Development has been unable to fulfill its mandate. The first reason is the EBRD has failed to clearly define for the states it works with a model market-based democratic state as an exemplar. Secondly, the states the EBRD works with are heavily corrupted, preventing funds from reaching intended destinations and having intended effects. Another problem is the EBRD has wavered from its original area of operations, and no longer is dedicated solely to the states it was created in order to help transition towards market-oriented democracies. Expanding to the Middle East, North Africa and South Eastern Europe has had a negative impact on the EBRD’s effectiveness. Due to its weighted voting structure, giving top financial contributing states more influence in voting decisions, the EBRD’s decisions often diverge from the intended goals of the organization. Last, but most importantly, a lack of transparent aid channels has resulted in the Bank funding projects indirectly supporting authoritarian politicians, and thus detracts from the EBRD’s intended mission.

In order to overcome these barriers to effectiveness, the EBRD needs to utilize several mechanisms to invest in more effective aid channels. One example would be using technical assistance programs (TAPs) to introduce parliamentary legislation that will strengthen institutional capacity, increase bureaucratic transparency, formalize accountability procedures, and routinize decision making procedures. Another measure is using grants to fund projects as opposed to loans. Grants remove the pressure to pump out loans that often make poor states assume unwanted debt. Additionally, grants are more efficiently and fairly distributed among member states, as compared to loans who favor middle-income countries. The EBRD is the only MDB that does not offer concessional loans. While MDBs extend concessional loans and grants to loan receiving countries, the window’s resources steadily decrease over time. Consequently the donor countries have to meet together periodically to replenish resources. By having to regularly meet and discuss loans, it would allow the donors of the EBRD to steadfastly look at these states to determine if they are transitioning towards market-based economies, and if they warrant further financial and technical support. Increasing transparency is imperative for the EBRD to ensure its projects are indeed helping states privatize their economies. Due to the highly centralized nature and high risk of corruptibility of the states the EBRD deals with, investing in more effective aid channels will help to fix the problem the Bank was created to solve.

Adopting more effective aid channels has costs and benefits. These various mechanisms would require tailoring technical assistance for each individual state, consequently requiring significantly more resources. However, the benefits far outweigh the costs. Implementing this strategy would help support small and medium enterprises, and better prepare states for outside investment, including EBRD financed projects. Making the necessary investments in these measures will yield much more effective results from the Banks’ projects.

Implementing these strategies can be done in several ways. To offer state specific technical assistance the EBRD needs to closely inspect the strengths and weaknesses of each state’s political and economic institutions, allowing a tailoring of TAPs to maximize effectiveness and efficiency by targeting weak domestic institutions. The EBRD can offer more concessional loans and grants by redirecting net income from non-concessional loan windows. To make the EBRD itself more transparent, it needs to publicly disclose the voting results and transcripts of Board of Governors and Directors meetings. Lastly, to also help with transparency amongst the boards, private sector project reports should be disclosed to the public on a quarterly basis as a safeguard to guarantee projects have their intended privatizing and democratizing effects. Contractual requirements for projects sponsors, and results from its projects in real transitional indicator terms must also be released for public consumption.

Therefore for the EBRD to be a more effective MDB it needs to invest in more effective aid channels. If it fails to do this it will fail to fulfill its mandate and continue to be an ineffectual international organization. The EBRD was created to help transition former soviet states to free market democracies, and thus far, in over 20 years of operations it has failed to do so.  Time still remains for it to implement the changes necessary to propel the states it works with to become market-based democracies.

UNCTAD’s Fiftieth: Prosperity for All?

By John Pollock, Paul Jackowski

Note: A published version of this op-ed appears here.

Fifty years ago, the United Nations Conference on Trade and Development (UNCTAD) was created to guide developing countries in finding their place in international trade.  Since then, it has lacked focus and faced internal stagnation, other organizations, such as the WTO, have taken over many of its issue areas.  On their golden anniversary, UNCTAD itself may need a guide so it can carve out a new niche for itself.

UNCTAD’s problems stem from its general operations, such as its voting procedures.  To reach agreements, UNCTAD relies on consensus voting. They have had some successes, such as the the New International Economic Order (NIEO).  Nonetheless, consensus voting has caused UNCTAD to be less effective than it could be. Overall, the problem with consensus is that it allows for the preservation of the status quo, causing stagnation within an organization that is supposed to promote development.  A move to majority voting would give the organization the flexibility it requires.

UNCTAD has had its issues with ineffectiveness over the years beyond being bogged down by the problems inherent with operation by consensus. Criticisms have ranged from it being staffed by largely unqualified people who had better connections than ideas, to it simply churning out voluminous amounts of data to try to justify its budget, instead of targeting its efforts on areas where it could do the most good. Thankfully the organization became cognizant of most of these issues and has taken steps to address them. The staffing issues have largely been cleared up and the areas of focus being discussed for UNCTAD in the future seem to be in line with positioning it to do the most good in the developing world.

UNCTAD’s ineffectiveness has come at a price to developing countries, who face their own unique challenges in the world market. These range from having to carry large stockpiles of reserve currencies to stabilize the value of their own currencies  to running into protectionist policies in the agricultural sector that many of them would like to be able to compete in globally.  Furthermore, they are at a significant disadvantage to more powerful nations in many ways. Rushing into trade liberalization without taking a hard look at the potential dangers can be disastrous for developing countries.

Hot money is something that should be of great concern to emerging economies and UNCTAD should be working with them to develop strategies to help mitigates its effects, which can be crippling. The continuous movement of hot money causes a constantly moving economic crisis because of the sudden removal of investments in one economy in favor of another.  In effect, hot money causes the economic collapse of the first country and other countries may find themselves in a worse position economically than where they started.

What is currently going on with the Fragile Five economies is indicative of the problems inherent to hot money and premature liberalization of markets by developing countries.  The sudden devaluation of the currencies in these nations due to exposure to the global markets fickle tendencies has put them in a precarious position. Their economies grew because of investment driven by quantitative easing in the United States, which made capital readily available to investors there. When the policy was pulled back, levels of outside investment in those countries plummeted immediately, thus destabilizing their economies. This highlights the need for UNCTAD to work towards building strategies for developing countries to operate effectively in the globalized economy.

By sharpening its focus, UNCTAD could provide accurate analysis of the global market and pragmatic policy recommendations. UNCTAD’s ability to research and analyze the global economy is remarkable. It has been ahead of the curve in anticipating developments, analyzing concerns, and providing recommendations. UNCTAD was the first to correctly note the problems and implication arising from unregulated markets, while the IMF and World Bank argued for unregulated markets. UNCTAD recognized the problems being created in emerging economies by globalization. UNCTAD provides an additional needed voice on the global economy  not just for its predictive ability, but also for its criticisms of other economic organizations. In a policy report about the crises within emerging economies from March 2014, UNCTAD criticized the IMF for their lack of surveillance of the global market and knowledge of varying perspectives.

In the same March 2014 report, UNCTAD gave various policy recommendations to deal with the crises in emerging economies.  One of UNCTAD’s recommendations is that developing countries should play a larger role in mollifying damages from financial crises.  To do this, new management practices needed to be created to prevent repeating mistakes from this past.  UNCTAD is uniquely qualified to help developing nations gain the maximum benefit from globalization. It is imperative that it realize their potential and help developing countries become stable growing economies.

Arab Monetary Fund: Victim of Arab Disputes

By Ziad Al-Achkar and Taylor Smith

NOTE: A published version of this op-ed appears HERE.

The Arab Monetary Fund (AMF), founded in 1976, has failed to improve the macro-economic realities of the Arab World. Regionalization, trade, and cooperation remain low when compared to other regions of the world. The AMF, with its limited resources and capacity, has achieved relative success in only one of its seven intended objectives. Delegating additional authority to the AMF would enable the organization to become a catalyst for positive change in the region and serve a dual purpose: increase effectiveness and relevance of the Organization as well as centralize regionalization efforts under the umbrella of one organization.

Intra-state politics within the Arab World have been the main catalyst for the lack of regional integration in the Middle East. A regional environment of competition, fuelled by a plethora of factors such as economic disparity, geography, and regime types have weakened incentives for inter-Arab cooperation and regional interdependence. These factors have promoted an environment that characterizes a lack of Arab unity, the demise of Pan-Arabism, and regional inequalities. Thus the current political environment of the Arab World, by its present design, subconsciously generates an immense degree of uncertainty amongst the member-states of the AMF. This political environment directly impacts the AMF as it struggles to gain legitimacy, promote compliance, and delegate authority in order to facilitate economic integration in the region. The challenge for the AMF, therefore, is to promote a strategy that incentivizes compliance while, at the same time, remodel the behavior of Arab states and their constituents.

Modifying or changing the behavior of the Arab States towards the AMF and regionalization is a crucial step towards achieving high levels of regionalizations and trade in the region. Our strategy highlights the importance of increasing cooperation between the AMF & member-states in terms of training and educational programs; prioritizing a normative approach to the problem. These programs focus on good economic practices that promote a shift from the import-centric rentier model that presently plagues the Arab World.

Focusing on diversifying the economies of the Arab states would help boost local industries and, in turn, help increase the demand for inter-Arab trade. Diversified economies help promote the creation of small to medium size businesses which rely on trade of goods and services to succeed. As the domestic constituents come to grasp the benefits of trade, the demand for more favorable free-trade policies would, in turn, create domestic pressures on policy-makers and increase the reputational as well as political costs to politicians that oppose change.

By providing more access to the AMF, Arab states would benefit from the expertise of AMF bureaucrats. This would assist Arab states in developing strategies to balance their credit payments. This, in turn, would help reduce the debt-levels of struggling Arab states and stimulate growth.  Increasing cooperation within the AMF and between Arab states will reduce the uncertainty amongst Arab states fueled by historical rivalries and competition.

Implementing an external strategy requires direct AMF involvement in influencing the behavior of Arab states and their political elites. In the spirit of promoting training and education programs for bureaucrats within these states, the AMF would host multiple workshops, conferences, and strategy meetings on economic integration, financial management, and monetary regulations. These conferences are designed to monitor the progress of reforms within member states, share best practices, and provide opportunities for policy-makers, civil society groups, and NGOs to interact with one another as well as participate in these discussions and strategy forums.

Through the Secretariat of the League of Arab States, the AMF should request that the Arab League Council of Economic Ministers provide quarterly updates on the progress and challenges facing member-states in implementing AMF goals. Along with these updates and conferences, the AMF should implement a mandatory stipulation that member-states seeking loans, regardless of the type, must hold consultation with the AMF Board of Governors. These consultations would aim to develop a roadmap or framework for economic and monetary policy reforms.

Implementing this strategy is not without its cost, predominantly sovereignty ones. Arab states will need to allow the AMF to play a more pivotal role in developing new policies and strategies for improving trade, diversification and growth. Arab leaders and policy-makers will need to accept that the policies of the past decades have not brought the region closer together but, instead, created further disparity between oil and non-oil producing nations. The turbulence and poor economic performance that faced the Arab World in the past few years highlighted the need for change. The Arab “Spring” revealed, however, that change will be tough, notably among states that have a strong central authoritarian regime with very little to no turnover within leadership positions.

Competition, disputes, and growing ideological differences among Arab nations is tearing apart the myth of Arab brotherhood and unity, its primary victims being Inter-Arab organizations.

How Harder Law in the BCBS can Alleviate Financial Crises

By Omar Ahmad & Michael Koehler 

Created in 1929 as a bank for facilitating German post-war reparations, the role of the Bank for International Settlements (BIS) has changed since its founding. Today, it is the central bank for central banks. Central bankers meet regularly at the BIS headquarters, located in Basel, Switzerland, to coordinate national financial regulation policies and stabilize the international financial system. The BIS functions through a variety of committees to provide background analysis and policy recommendations. The most influential committee is the Basel Committee on Banking Supervision (BCBS). The BCBS provides banking information and suggests ways to improve global banking supervision. We argue that the problem of the BCBS is that its policy recommendations are only suggestive. For the BCBS to be more effective at managing international financial stability, it must create legally mandatory recommendations for banks. However, obligating central bankers to follow the BCBS policy recommendations requires an amendment to Article 1, Section 3 of the BCBS Charter.

The BCBS controls international financial stability by setting recommended capital adequacy ratios (CAR). That is, member central bankers of the BCBS set the recommended ratio of on-hand capital to risk-weighted assets for private banks. This ensures that banks can absorb short-term losses, while restricting the amount of risky loans the bank can issue. The Basel III Accords were the latest adjustment to the CAR in response to the financial crisis of 2007-2008.

However, the BCBS recommended CAR is merely a suggestion. Therefore, international financial stability depends on the commitment of central bankers to the BCBS CAR recommendations, because the BCBS lacks legal obligation. Central banks ultimately decide whether to honor the recommendations. Thus, there is no guarantee of financial stability from the BCBS, causing it to be ineffective at preventing international financial crises.

To best address the frequency and severity of international crises of capital adequacy, we recommend that the Basel III Accords be made mandatory by increasing the obligation and the delegation of the BCBS charter. This would change the strategy from a more flexible soft law, into a more rigid hard law.

The idea of a hard strategy originates in the “Concept of Legalization”, where increasing the obligation, precision, or delegation  can shift a law from being soft to hard. Specifically, we argue that the obligation and delegation should become harder.

Legal obligation would ensure that a state who agrees to the Basel Accords would follow that agreement at the risk of losing its reputation for making credible commitments. Since a state does not enter into agreements it believes it cannot follow, other states will perceive commitment as the willingness to follow through on its obligation and to accept punishments for infraction. Central banks who choose not to ratify the Accords face the risk of not being competitive since their perceived risk will be higher, making obligation the more attractive option. Also, higher legal obligation allows the BCBS to introduce the principle of pacta sunt servanda for its laws, which implicitly means that central banks will follow the rules and commitments because they have legal status, per se.

Additionally, increased delegation to the BCBS would reduce infractions dramatically. Since national legislatures delegate power to central bankers, additional legislative oversight from an outside actor, like the BCBS, would deter central banks from not adhering to the capital adequacy ratios. Additionally, this will open up channels for communication between central banks and the BCBS, allowing for increased information sharing and cooperation.

For the BCBS to implement obligation of the CAR requirements for central banks, it must amend the BCBS Charter. Specifically, the BCBS should reverse the language of Article 1, Section 3, which explicitly states that the BCBS has no supranational legal authority. This would effectively shift the legal status of the BCBS from low legalization toward higher legalization and would increase the degree of pacta sunt servunda.

Second, the BCBS should add an oversight mechanism for legislative bodies. As experts of international finance, the BCBS generally has more knowledge and information about the dynamics of international finance. Therefore, the BCBS should create a mechanism that works closely with member national legislatures to inform them when their central banks are engaging in risky behavior and failing to comply with BCBS CAR requirements.

The BCBS currently is not as effective as it could be. The non-legal nature of its capital adequacy ratios harms the ability of the organization to effectively prevent financial crises of capital adequacy. Our recommendation of making the Basel Accords from suggestive to obligatory and enforceable will motivate states to adhere to the recommended CARs or otherwise face reputation losses and lose the ability to be competitive. By amending Article 1, Section 3 of the Charter to make the CARs mandatory, the BCBS could better prevent financial crises.

An Inside Look at Effectiveness: “Time to get Syria-ous!”

By Kate Campbell & Wendy Ekua DaCruz

Note: A published version of this op-ed appears here.

U.S. Secretary of State, John Kerry, and other top international leaders have been careful to stop short of saying what will happen to Syria and President Bashar al-Assad, should the nation fail to meet the ultimate deadline for the chemical weapons removal. While the Organisation for the Prohibition of Chemical Weapons (OPCW) has been wildly effective in the past, the Syrian case has posed an evident challenge and barrier to their effectiveness concerning compliance and enforcement measures. If Syria fails to complete their weapons removal by the June 30th, 2014 deadline, the OPCW should publicly condemn Syria’s non-compliance and urge its signatories to issue targeted sanctions against Syria. This will have the greatest potential for success in resolving the issues surrounding the barriers to political and legal effectiveness; the lowest risk for the legitimacy of the organization; and provide the OPCW with the most oversight in enforcing compliance.

Western governments alike have struggled to address the problems in Syria, tepid to intervene in a conflict that appears to have no end or resolution in sight. Nevertheless, the international community has taken a role in the removal of chemical weapons in Syria, following Assad’s agreement to the Chemical Weapons Convention (CWC) in September 2013. The OPCW is the 2013 Nobel Peace Prize winning international organization responsible for monitoring this removal process and enforcing compliance with the CWC.  The Convention calls for the complete elimination of an entire category of weapons of mass destruction, prohibits the production, transfer, development, acquisition, stockpiling, and retention of chemical weapons by State Parties. The organization holds great international legitimacy as they are responsible for the removal 80% of the world’s chemical weapons and have the support of 98% of the international community, who are working together to oblige by the CWC.

In the current strategy for weapons removal, if Syria is deemed non-compliant the OPCW will appeal to the UN Security Council (UNSC) to take action and enforce consequences. However, with the current relationship between the US and Russia growing increasingly strained over the situation in Crimea, and Russia’s strategic alliance with Syria, there is likely to be no consensus on any action against Syria. Thus, enforcement of compliance is largely in the hands of the OPCW, which has never been faced with a situation in which it had to compel a State Party to comply.

Although the OPCW does not have any authority to legally enforce sanctions, this strategy allows the OPCW to circumvent the ineffective UNSC and subsequently alter states’ behavior. Because of their track record, the OPCW maintains a great deal of international respect. A recommendation of this size holds much more value coming from an organization with such legitimacy, rather than from any individual state or small group of states.  The Council would vote to suspend Syria’s privileges under the Convention if Syria does not meet the deadline and deem Syria non-compliant.The next step would be to draft the sanctions that the OPCW would recommend. Any sanctions passed should be targeted and include humanitarian exemptions: medical supplies, basic foodstuffs, and supplies for essential civilians needs such as educational and agricultural supplies and water and sanitation supplies.These “smart sanctions” will target Assad and his top advisers who have violated the CWC, while seeking to have little effect on the civilians. Also, the State Parties will agree to lift these new sanctions and allow Syria member status if they begin disarmament again.

The recommendation of sanctions would be brought to the Conference of State Parties for a vote. The OPCW typically makes consensus based decisions. In order to invoke Article XII of the Convention, and recommend that the State Parties adopt targeted economic sanctions against Syria, the Conference of State Parties must first agree. If an agreement on enforcement cannot be reached through a consensus, other measures must be taken. The OPCW may need to rely on their voting procedures in the bylaws that state that the Conference should decide on matters of substance by a two-thirds majority vote if a decision cannot be reached by a consensus after 24 hours. In this case, it is likely that a recommendation of sanctions would eventually pass if a vote is taken in this manner. Once adopted by the Conference, it would be the duty of the individual states to adopt the sanctions against Syria until Assad complies with the Convention in order to be effective.

Unfortunately it’s been over three years since the outbreak of the Syrian civil war and no real progress in the international arena has been made. Although thousands of homes, schools, and hospitals have been demolished, the case of Syria illuminates the current gaps in enforcement procedure of the OPCW. On a brighter note, discourse has been ignited among major players on how to develop better strategies toward more effective compliance. The above strategy is a positive sign toward multilateral cooperation in the international arena of arms control.


Combating the IMF’s Anachronistic Governance: Delinking Voting Shares and Giving a Voice to the G24

By Adam Kirchner and Fara Momen

IMF reform is long overdue. When the IMF Board approved a landmark restructuring of fiscal quotas and voting shares in 2010, it was lauded as “a very important increase in the voice and representation of the emerging market and developing countries.” However, years later the implementation of IMF governance reform remains elusive. The solution is to “delink” voting shares from increases in total financial subscriptions.

The primary obstacles for updating the IMF’s outdated representation structure are the “determined resistance to change on the part of overrepresented countries and somewhat flagging determination from IMF management to push the process forward.” Political impasse at the U.S. Congress has also stifled IMF reform, creating the substantial risk that China and other emerging market and developing countries will ignore the IMF and other institutions in which they are disempowered, thereby circumventing developed countries’ influence over global capital flows.

The stalled attempt to reform the IMF’s anachronistic governance structure is a substantial barrier to the G24’s effectiveness in coordinating the position of developing countries on monetary and development issues and to ensure increased representation and participation of developing countries in global finance affairs. The G24 cannot implement measures that meet the interests of developing countries without the consent of developed countries which chair the IMF Board of Governors and hold de facto veto power. Until reform is implemented at the IMF, its governance will remain largely the same as when it was created during the Bretton Woods Conference 70 years ago. The inequity of the IMF’s outmoded voting regime is apparent:

Today the four big BRICS (Brazil, Russia, India, China) have a combined share of world gross domestic product of 24.5 percent, compared with the 13.4 percent share of the four big European economies (Germany, France, Britain, Italy); but the four BRICS countries have a combined share of votes of only 10.3 percent, compared with the four European nations’ share of 17.6 percent.

In response to the developed countries’ failure to implement the 2010 restructuring plan, several political economists have proposed alternative strategies for reforming IMF governance. For instance, Arvind Subramanian argues in favor of a Sino-U.S. “grand bargain.” In contrast, Jim O’Neil suggests that influential countries should be more elitist and exclusionary.

Among all of the strategies for reforming IMF governance, the solution proposed by Robert Wade and Jakob Vestergaard is the optimal choice because it corrects “large discrepancies between a country’s share of economic weight and its share of voting power” which would have persisted even if the 2010 reforms were enacted. Wade and Vestergaard propose to “delink” IMF member states’ relative voting shares from the sole factor of their fiscal contributions to the fund. Instead, IMF governance would benefit from “simplicity and consistency” by basing voting shares on economic metrics such as the country’s proportional GDP.

Fair assessments of most alternative strategies for reforming IMF governance expose the latent costs – which include years of political deadlock – counteracting those strategies’ ostensible benefits. However, Wade and Vestergaard’s “delinking” strategy actually offers net benefits in excess of ostensible costs.

Under Wade and Vestergaard’s strategy, a member state’s voting strength would be recalibrated regularly, according to the state’s proportional GDP, thereby better aligning the state’s IMF governance role with its global economic stature. This arrangement would benefit countries like Brazil, Russia, India, and China, whose combined GDP is more than double their present combined IMF voting shares. And by “delinking” voting shares from quotas rather than entirely repealing quota-based voting shares, developed countries can opt to offset whatever proportional voting-share losses they might otherwise endure through the GDP calibration by voluntarily increasing their financial contributions to the IMF in order to earn additional voting shares.

The genius of Wade and Vestergaard’s strategy is that all IMF member states would receive the GDP-based voting shares that reflect their relative economic power, and all member states may optionally increase quota contributions in order to supplement their voting shares. In short, “delinking” voting shares from quotas could actually result in an increase in available global lending capital via the IMF.

Wade and Vestergaard’s “delinking” proposal can be implemented via petition by a member state or group of member states, pursuant to the IMF’s Articles of Agreement, Art. XXVIII, for an amendment of Art. XII, § 5(a), which provides for the calculation of voting shares. Proposed language for amended Art. XII, § 5(a) could calculate a given IMF member state’s average GDP, as reported by the International Financial Statistics Data Report, during the five-year period preceding the current fiscal year, relative to all other member states’ five-year average GDP. The IMF would then assign pro rata voting shares proportional to the five-year average GDP to each member state for the year beginning with the third fiscal quarter, effective for the twelve months thereafter.