Extra IMF credit wins parliament approval

Last November Ireland was forced to take a multi-billion IMF bailout package Reuters

Switzerland will participate in an International Monetary Fund (IMF) rescue packet for countries in need of an emergency bailout.

Parliament on Tuesday approved agreements to the tune of SFr30 billion ($32.3 billion), including a pledge for a SFr16.5 billion contribution to an international borrowing scheme.

The decision came at the time when Switzerland is struggling to keep its seat on the IMF executive board as the organisation is considering plans for a reform.

Three of the four main parties came out in favour of the government during the debate in the House of Representatives. Only the rightwing Swiss People’s Party and members of the Green Party were opposed.

Finance Minister Eveline Widmer-Schlumpf stressed that participation in an international stabilisation programme for countries that ran into problems on the financial markets was important for Switzerland’s globalised economy.

“Switzerland has a vital interest in a stable international monetary system that helps integrate developing nations into the world economy,” Widmer-Schlumpf said.

Bargaining chip

She also pointed out that the government would use the credit as a bargaining chip for the Swiss constituency in the governance reform at the Bretton Woods Institutions, which include the IMF and the World Bank.

“It is also an opportunity to underline our claim to our seat in the IMF executive committee,” she said.

For nearly 20 years Switzerland has been leading an IMF constituency, currently comprising Poland, Serbia and five former Soviet republics in central Asia with a voting share of 2.8 per cent.

But its seat in the 24-strong executive committee has been questioned after the G20 major and emerging economies decided on an overhaul of the IMF at the expense of European countries.

However Switzerland aims to maintain its seat on the board because of its role as an international financial centre, its financial contribution to the IMF and the role of the Swiss franc.

Voters approved Switzerland’s membership in the IMF and the World Bank in a nationwide ballot in 1992.

Development aid

The People’s Party accused the majority in parliament and the government on Tuesday of taking risks and squandering taxpayers’ money.

“Those who support the higher IMF contributions act against the interest of Switzerland,” said parliamentarian Ulrich Schlüer. “It is an irresponsible monetary decision to rescue bankrupt euro-member states,” a People’s Party statement added.

Finance Minister Widmer-Schlumpf and speakers from several parties pointed out that Switzerland had been contributing to IMF credit lines since 1992 and never lost any money.

The centre-left Social Democratic Party threw its weight behind the government – thus creating a clear majority for the IMF credit – following parliament’s approval of an increase in development aid.

On Monday the House of Representatives followed the Senate in approving a SFr640 million increase in aid for development aid projects over the next two years, bringing Switzerland’s aid expenditure to 0.5 per cent of Gross National Income.

IMF

The International Monetary Fund was set up alongside the World Bank in 1945 as part of the so-called Bretton Woods institutions.

The IMF monitors the world economies, lends to members in economic difficulty and provides technical assistance to secure financial stability and reduce poverty.

The financial contributions of its 187 member countries are proportional to the importance of a country’s economy. This also defines their share of the votes.

Switzerland joined in 1992 following a nationwide vote.

Swiss voting group

Switzerland has been leading an IMF constituency which is includes Azerbaijan, Kyrgyzstan, Poland, Serbia, Tajikistan, Turkmenistan, Uzbekistan and, more recently, Kazakhstan.

Overall the group has around 2.8% voting share, which ensures Switzerland a place on the IMF Executive Board.

In comparison, the US has a 17.5% share, which gives it a veto right for important IMF decisions.