Press Release: IMF Executive Board Recommends Reforms to Overhaul Quota and Voice
March 28, 2008Press Release No. 08/64
The Executive Board of the International Monetary Fund (IMF) today recommended an overhaul of the institution's governance structure that will realign quota and voting shares of member countries with their relative weight and role in the global economy, and thus enhance the participation and voice of emerging market and low-income countries in the 185-member IMF. The Executive Board also recommended that the Fund's Board of Governors approve the reform package under voting procedures scheduled to be concluded by April 28, 2008.
"Today's agreement is a major step forward in the modernization of the Fund and our efforts to adjust its structures to the dynamic and changing realities of the global economy, but it is only a first step," IMF Managing Director Dominique Strauss-Kahn said. "We are creating a more flexible system for quota and voice, which involves further changes over time as the relative positions of countries in the world economy evolve."
The proposed reforms include a simpler and more transparent quota formula; a second round of ad hoc quota increases to enhance the representation of dynamic economies (see Press Release No. 06/205); a tripling of basic votes that will increase the voice of low-income countries; and an additional Alternate Executive Director for Executive Directors elected by a large number of members, which will benefit the two African constituencies on the Executive Board.
"The decisions taken today reflect the membership's commitment to the Fund's future by enhancing its effectiveness, credibility, and legitimacy," the Managing Director noted, adding that "These were not easy advances. Difficult compromise was necessary by all Fund members to reach this point. But these have been achieved in the spirit of international cooperation that is the hallmark of this institution."
• The proposal is forward-looking and dynamic, recognizing that representation will need to adjust to changes in the global economy.
• Every five years, the Executive Board will recommend further realignments that would raise the shares of underrepresented members.
• The package is delivering more than was asked for at the Annual Meetings in Singapore in 2006.
• Under the package, voting shares for 135 countries out of 185 member countries will increase.
• This change in voting shares will amount to an aggregate shift of 5.4 percentage points to underrepresented countries.
• The basic votes for each member triple under the package, the first such increase since the Fund's inception in 1944. This tripling of basic votes is important as it results in an increase in voice and representation for most emerging market and low-income countries.
• The African constituencies on the Fund's Executive Board are receiving additional Alternate Directors.
Outline of Executive Board's Recommendation. The proposed reform package will increase nominal quotas ranging from 12 to 106 percent for 54 countries, with some of the largest gains going to dynamic emerging market economies; the aggregate shift in quota shares for these 54 members amounts to 4.9 percentage points. The package will further result in voting share increases for 135 countries, reflecting both the increases in quotas and the increase in basic votes. The aggregate shift in voting shares for these 135 countries will amount to 5.4 percentage points, including substantial increases for low-income country members.
To ensure that quota and voting shares continue to reflect developments in the weight of member economies, and to make further progress in closing the gap between actual quota shares and those calculated under the quota formula, the proposal calls on the Executive Board to recommend further realignments of quota shares in the context of future general quota reviews, which occur every five years. At the same time, to prevent an erosion in the voice and participation of low-income countries as a group, the proposal includes the establishment of a mechanism that will maintain the share of basic votes to total voting power in the future.
New Quota Formula. The new quota formula contains four variables expressed in shares—GDP, openness, variability, and reserves—with weights of 50 percent, 30 percent, 15 percent and 5 percent, respectively. The GDP variable is a blend of 60 percent of GDP at market exchange rates and 40 percent of GDP at Purchasing Parity Power (PPP) rates. In addition, some of the variables in the new quota formula have been updated and modernized from those in the existing formulas.
Second Round of Ad Hoc Quota Increases. The reform package further proposes a second round of ad hoc quota increases totaling approximately 9.55 percent (with an overall increase under the reform of 11.5 percent) to enhance representation for dynamic economies, many of which are emerging market economies, whose weight and role in the global economy have increased. The increase would be allocated on the basis that all members that are underrepresented under the new quota formula are eligible for increases and also includes three one-time elements:
• Several underrepresented advanced countries have agreed to forego part of the quota increases for which they are eligible: Germany, Ireland, Italy, Japan, Luxembourg, and the United States.
• Underrepresented emerging market and developing economies, whose shares in global PPP GDP are more than 75 percent greater than their actual pre-Singapore quota shares, will receive a minimum nominal quota increase of 40 percent from their pre-Singapore level.
• Recognizing that the four members that received quota increases in the first round of ad hoc increases at the Singapore Annual Meetings in 2006 remain substantially underrepresented, these members-China, Korea, Mexico, and Turkey—will receive a minimum nominal second-round increase of 15 percent.
Tripling of Basic Votes. The overall package includes a recommendation that the basic votes of each member be tripled under the reform—the first such increase since the Fund's inception in 1944—ensuring a significant increase in voting share for low-income country members as a group. It would thereby make a major contribution to achieving the key goal of enhancing the voice and representation of low-income countries.
Additional Alternative Directors for Large Constituencies. The reform proposal further recommends that Executive Directors representing constituencies that have more than 19 countries would be entitled to appoint an additional Alternative Director to the one position granted to all Executive Directors. This would further enhance the capacity of the two Executive Directors' offices representing African constituencies, recognizing the heavy workload that flows from the important advisory and financial role that the Fund is playing in many of the members of these constituencies.