•Press Release Globalization and Trade IMF World
Washington, DC — A new paper from the Center for Economic and Policy Research (CEPR) proposes reforming governance of the International Monetary Fund (IMF) by adjusting for IMF members’ historical shares of cumulative carbon dioxide (CO2) emissions. The paper, by CEPR senior research fellow Andrés Arauz, CEPR research associate Ivana Vasic-Lalovic, CEPR senior policy analyst Lola Allen, and CEPR researcher Renée Perez, proposes recalculating IMF members’ voting power by adjusting for their respective cumulative GHG emissions going back to 1944. The inclusion of such a climate variable would significantly reduce the voting share of the largest CO2 emitters and would increase the voting share of Global South members. The paper concludes that the major winners under this recalculation would be Small Island Developing States (SIDS), which are some of the countries most vulnerable to climate change, especially the impacts of rising sea levels.
“The IMF’s governance structure goes back to the end of World War II, long before climate change was really on anyone’s radar,” Arauz said. “If the Fund is going to respond effectively to the climate crisis, and for it to become an institution that’s truly representative of the twenty-first century, then its governance will need to be significantly reformed. Adjusting the IMF’s voting power by taking climate emissions into consideration would do much to address these weaknesses.”
The release of the report comes as government officials from around the world meet at the COP27 climate summit in Sharm el-Sheikh, Egypt, and just weeks after the annual meetings of the IMF and World Bank, during which the institutions were criticized for a lack of sufficient attention to the climate crisis.
The paper notes that when the IMF was created at the end of World War II, “Dozens of now-independent countries were then still colonies of Western European nations.” The power imbalance at the IMF between wealthy Global North countries and low- and middle-income countries in the Global South has persisted and has been a defining feature of how the Fund operates and how it is perceived in the Global South.
The paper is meant to address the problem that “Advanced economies — 36 high-income countries as categorized by the IMF — are responsible for approximately 44 percent of cumulative global CO2 emissions since 1944,” yet these same countries have effective control over IMF decision-making, with the US alone yielding effective veto power, and European members regularly voting with the US on matters of importance. All Global South countries, meanwhile, currently have only 37 percent of votes, with sub-Saharan African countries holding just 4.9 percent of votes at the Fund.
“It is developing countries that would most likely benefit from SDRs for climate, but it is rich countries’ votes that matter for that decision to take place,” Arauz notes.
The report notes that Barbados prime minister Mia Mottley has proposed a yearly issuance of debt-free Special Drawing Rights (SDRs) from the IMF to assist countries in responding to climate change. Despite many agencies and development experts’ and officials’ references to the “unprecedented” and “historic” (and overlapping) climate crisis, global food insecurity crisis, energy crisis, emerging debt and development crisis, and pandemic-related and war-related economic shocks, rich countries have yet to back a new major SDR allocation. This is despite calls from members of the US Congress and over 140 civil society groups around the world for a new major issuance of at least $650 billion worth.
“The IMF is an old institution at this point — some would say ‘antiquated,’” report coauthor Ivana Vasic-Lalovic said. “These reforms could help bring the IMF into the post-colonial era and into the present day and push it to address the climate crisis that is manifest in the severity of droughts, floods, storms, glacial melting, record heat, and other disasters at an ever greater — and more overwhelming — cost.”