IMF quota reform a complex, two-year process
The IMF is pressing ahead with what is envisaged to be a
two-year process of reform designed to update the representation
of members and modernize the governance
of the 62-year-old institution. After an initial round of ad
hoc increases last September for four dynamic economies
that were clearly underrepresented (China, Korea, Mexico,
and Turkey), the IMF has now embarked on the second and
more far reaching phase of the reform process.
At the IMF-World Bank Annual Meetings last September
in Singapore, the IMF’s Board of Governors, representing all
members of the Fund, approved a resolution initiating the
reform plan, which is designed to revamp the representation
of members to reflect recent changes in the global economy,
while enhancing the participation and voice of low-income
countries. The revamp is part of an overhaul of the IMF’s
priorities and governance spelled out in IMF Managing
Director Rodrigo de Rato’s Medium-Term Strategy.
The timetable for completing the reforms is by the 2007
Annual Meetings, and no later than the Annual Meetings
of 2008.
A key issue in the reform plan is how each member’s subscription,
or quota, is calculated. The reform package consists
of the following elements:
• initial ad hoc increases in quotas for China, Korea,
Mexico, and Turkey;
• start of work on a new quota formula
to guide the assessment of the
adequacy of members' quotas in the IMF,
to be completed by the 2007 Annual
Meetings, and not later than the Spring
Meetings of 2008;
• a second round of ad hoc quota
increases based on the new formula; and
• work on a proposal to increase the
basic votes that each member possesses
to ensure adequate voice for low-income
countries in the IMF.
How quotas work
Voting power at the IMF is tied to the relative size of each
country in the global economy—which is reflected in its
quota. This quota also has a bearing on each country’s
access to IMF financing.
Quota subscriptions, which must be paid in full when a
country joins the IMF, generate most of the IMF’s financial
resources. Up to 25 percent must be paid in the IMF’s own
currency called Special Drawing Rights (SDRs), or widely
accepted currencies (such as the U.S. dollar, the euro, the
yen, or the pound sterling), while the rest is paid in the
member’s own currency. With the admission of Montenegro
as the IMF’s 185th member in January, total members’ quotas
were about $325 billion.
What are basic votes?
Under the rules of the Fund, each country
has 250 basic votes plus one vote for each
SDR 100,000 of quota. The effect of an
increase in basic votes is to increase the voting
power of those members whose voting
power is below the average voting power for
Fund membership as a whole, and thereby
to allow the smallest members to have an
increased measure of influence in the Fund’s
decision-making process. Successive general
increases in quotas have reduced the share
of basic votes to the present 2 percent from
11 percent when the Fund was established.
The IMF’s Executive Board has proposed at a minimum,
a doubling of the basic votes that each IMF member possesses
and protection of the pre-first round voting share of
low-income countries as a group. The proposal also calls for
the share of basic votes in total voting power to remain constant
going forward. Offices of African Executive Directors
have also been promised additional staffing resources.
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