Assumptions about American Influence in the IMF

Chapter 3: The Changing Influence

and if based on the postwar evolution of US hegemony, an analytical approach divided into three stages can be adopted as follows:

1.1 Stage 1: 1945-1965 Power at its Zenith and Critical Impact on the IMF

The IMF was conceived in July 1944 at an international conference held at Bretton Woods, New Hampshire, U.S. The IMF came into existence in December 1945 when the first 29 countries signed its Articles of Agreement. The statutory purposes of the IMF today are the same as when they were formulated in 1944.¹⁹⁰ Countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates (in effect, the value of their currencies in terms of the U.S. dollar, and in the case of the United States, the value of the US dollar in terms of gold) pegged at rates that could be adjusted with the IMF’s concurrence, but only to correct a “fundamental disequilibria” in the balance of payments. Thus, the dollar standard institution under the American hegemony replaced the Gold standard institution under the British hegemony.

Furthermore, American power superiority was directly fused into the quota distribution in the IMF. At the end of World War II, the United States accounted for 22 percent of world exports and held 54 percent of official international reserve assets. Those percentages were reflected in a 33 percent quota share for the United States in the IMF at that time, and it was broadly accepted that the Fund would not make any major decisions without US approval. In recent years, the United States has still contributed up to 17.67 percent of the capital subscriptions in the IMF, which are the institution’s primary source of financing.¹⁹¹ During this period, the United States could usually rally enough support in order for its policies on important issues in the IMF to prevail.

1.2 Stage 2: 1965-1985 Relative Decline of the Power and Substantial Impact on the IMF In 1965, America directly joined the battle in Vietnam, which exhausted its energy disastrously throughout the 8 years till 1973, the end of that war. Other immediate effects of this war lay in the impairment of the US’s high reputation of being capable of exerting a prominent and decisive role in the IMF, and of its mighty economic capabilities, and external payments position as well. In

190 See Article of Agreement of the International Monetary Fund, Article I. At IMF Official Website:

http://www.imf.org/external/pubs/ft/aa/aa01.htm.

191 Graham Bird, “Crisis Averter, Crisis Lender, Crisis Manager: the IMF in Search of a Systemic Role”, World Economy, September 1999.

combination with a dramatic increase in domestic spending on President Lyndon Johnson’s Great Society programs, the rise on external military spending further worsened the overvaluation of the U.S. dollar under the Bretton Woods system of fixed exchange rates. “The Vietnam War was by no means the sole culprit in this decline, but its catalytic role was certainly substantial.”¹⁹²

With regards to the international situation, the confrontation between the East-West coalitions remained the distinct feature of international politics on the one hand; while on the other, Japan and the European countries underwent an accelerating development era. In addition, one after another of the Third World countries had become independent rather than remaining colonized states, thus these countries gradually formed a group with their own accordant voice in the international political and economic arenas that sometimes resulted in their being neglected powers in the decision-making process in international organizations. When domestic factors are taken into account, the Reagan administration actually marked a sharp break with the past in its initial skepticism toward the IMF (a skepticism that disappeared with the debt crisis) and it also epitomized the growing difficulty that preceding administrations had experienced in mobilizing support to commit resources to international organizations that indirectly led to the negative attitude toward the US government and thus reduced its influence in international organizations. These twenty years proved to be a period of a decreasing US role in the Fund caused by the relative decline of hegemonic power. However, the United States still retained substantial influence over IMF decision-making that was mainly achieved through the 85% majority clause for crucial issues such as the redistribution of Quotas and voting power.

1.3 Stage 3: 1985-Now Revival of US Power and Critical Impact on the IMF

After Mikhail Gorbachev became the General Secretary of the Soviet Union Communist Party, which clearly elicited the declining reality of the USSR, the United States again won back its leading role in the international community and thus acquired more say in orientating and deciding international affairs. At the same time, the Japanese and German economies underwent severe problems. This era also witnessed the final dissolution of the USSR, while American new economic prosperity enabled it, for the second time since the end of World War II, to undeniably become the

192 James Boughton, “The IMF and the Force of History: Ten Events and Ten Ideas That Have Shaped the Institution,” IMF Working Paper, http://www.imf.org/external/pubs/ft/wp/2004/wp0475.pdf.

engine of world economic development and the leader in world politics. Roughly speaking, the disparity between American power and that of the rest of the world looks overwhelming. In terms of military power, the United States is the only country with both nuclear weapons and conventional forces with global reach. American military expenditures are greater than those of the next eight countries combined, and it leads in the information-based “revolution in military affairs.” In economic scale, America’s 31% share of world products (at market prices) is equal to the next four countries combined (Japan, Germany, Britain, and France).¹⁹³ In terms of cultural pervasion, the United States is actually the number-one film and television exporter in the world. It also attracts the most foreign students each year to its colleges and universities.

Concretely speaking, the US influence during this period came mainly from three conditions.

Firstly, although with the passage of time, the Third World and Europe achieved some progress in having an effect on the decision-making process, they usually failed to consolidate their position in the IMF’s functions so as to fully realize their rights and strategic goals. Secondly, the US obtained predominant influence upon the end of the bipolar structure and could thus use a number of resources to carry out its strategies. Alliances, economic aid, and soft power are all useful instruments in enhancing American influence. Thirdly, the most important factor lies in the enlargement of the power gap between the unipolar hegemon and other states. The supreme prestige of American power makes it relatively easy for the US to persuade its negotiating counterparts to support American goals. During this period, the United States renewed its critical impact on the IMF through both its strong economic power and soft power.