Directors Back Reforms to Overhaul IMF Quotas and Voice

• Pages: 58

Page 58

In a key step toward reforming the IMF, the Executive Board backed a resolution that would achieve a sig-nificant shift in the representation of dynamic economies, many of which are emerging market countries, and give poorer countries a greater say in running the multilateral institution.

Objectives of the reform

Acknowledging the underlying shift taking place in the world economy, with emerging market economies play-ing an increasingly important role, the IMF reform process aims to better align quota and voting shares in the Fund with member countries' weight and role in the global economy. Equally important, the reform aims to enhance the participation and voice of low-income countries.

The Board proposal is part of a two-year reform program approved at the 2006 Annual Meetings in Singapore, when initial ad hoc increases in quotas were agreed for China, Korea, Mexico, and Turkey. A country's quota at the IMF largely determines its voting power in the 185-member institution.

Reform package

The main reform elements are the following:

* A more transparent quota formula.

The reform is based on a simpler, more transparent quota formula (see box).

* A second round of ad hoc quota increases. Together with the 2006 ad hoc adjustments, the cumulative increase in quotas for dynamic countries is 11.5 per-cent. All underrepresented members under the current formula are eligible for a quota increase under the reform. Three onetime elements are also included:

- Some advanced economies forgo increases. To reinforce the objectives of the reform, several underrepresented advanced countries have agreed to forgo part of the quota increases for which they are eligible: the United States, Germany, Italy, Japan, Ireland, and Luxembourg.

135 countries will see an increase in their voting share

- Boost for members underrepresented based on global PPP GDP. Emerging market and developing economies with actual quota shares substantially below their share in global GDP in terms of purchasing power parity (PPP) will receive a minimum nominal quota increase of 40 percent under the reform.

- Further increases for the Singapore-4. Recognizing that the four members that received quota increases at the Singapore Annual Meetings remain underrepresented, these members will receive a minimum nominal increase of 15 percent.

Five-year reviews. To ensure that quota and voting shares...