Committee: the International Monetary Fund (IMF)
Topic: development and economic growth
Venezuela was loosely tied with the IMF after the 12-month Stand-By Arrangement expired in 1997. In April 2002, the relationship between Venezuela and the Fund has deteriorated as the organization responded to the military coup quickly and pledged to provide financial assistance to an illegitimate government, making it suspicious of whether the IMF erroneously predicted the economic performance of Venezuela in relation to its political consideration on supporting the overthrown of democratically elected government.
Meanwhile, Venezuela was further distanced from the IMF from 2001 to 2003, which was largely due to highly inaccurate forecast of economic growth of Venezuela by the Fund. It overestimated the growth by 11.7% and 10% in 2001 and 2002 respectively. Even worse, it underestimated Venezuela’s economic performance by 10.6% in 2003 as an opposition-led oil strike took place in December 2002.
The relationship between Venezuela and the IMF went to a freezing point in 2007 as the former left the latter by clearing all its debt to the IMF. Until now, though, Venezuela is still listed as a member country in the IMF.
Venezuela calls for international support in relations to its proposed reform on the IMF which balances the needs of both developing and developed countries:
- Adds “Social Progress Index” as a new criterion of formulating the quota system
The current formulation of quota system has led to heavily weighted decision-making power of developed countries in the IMF. Social Progress Index is suggested to be included as a tool to measure the basic human needs, foundation of wellbeing and opportunity so as to compensate the loopholes of calculating GDP as an index, which fails to reflect the economic status of member countries. By equally distributing the proportions of formulating the current quota system In terms of Social Progress Index, average of GDP, openness, economic variability, and international reserves, all countries would enjoy a reasonable right to involve in making decision in the IMF.
- Aids developing countries to build up social infrastructures to attract private investors
The IMF’s current mechanism of providing short-term relief will only lead to a vicious cycle for developing countries to overly rely on the financial aid without making any economic progress. For a betterment of those countries, one must provide a long-term strategic plan to allow private investors to boost their economic development. Social infrastructures are the foundation of a stable economy, which fosters the confidence level of private investors. By taking the above measure, the vicious cycle will come to an end.
- Cancels the veto power of the developed country with the largest economic power
There has been an obvious imbalance of power between developing countries and developed countries within the IMF. For the eight countries having their own Executive Director in the Executive Board, they consist of 46.37% voting power in total. To avoid their economic manipulation on developing countries through the IMF, limitations on the country with excessive veto power should be imposed to balance the economic needs of both developed and developing countries.