Transcript of a Conference Call on Quota and Governance ReformWashington, D.C., January 31, 2013
SENIOR IMF OFFICIAL: Good morning. I wanted to give you a briefing today on an agreement reached by the Executive Board of the IMF last night which is a further very important step in implementing the quota and governance reforms that were agreed in 2010. Just to remind you, I think you're all familiar with this, that in 2010 several steps were taken. There was an agreement on the Fourteenth General Review of Quotas which involved a major shift in quota shares particularly toward dynamic emerging market and developing countries. It also involved an amendment of the Fund's Articles to reform the way Board members are elected and it involved a commitment to rebalance seats on the Board, which is already underway. Those elements of course have advanced substantially since 2010. We are now very close to the thresholds that we need for the 2010 reforms to come into effect. When one large shareholder, the largest shareholder, approves the amendments, those changes will come into effect.
The other two elements that were agreed in 2010 were, one, that there would be a comprehensive review of the quota formula that the Fund uses when it's adjusting quota shares in general reviews and this was to be completed by January 2013. And then the second element was to bring forward the timetable for the Fifteenth General Review of Quotas by 1 year to January 2014.
The commitment complete the review of the quota formula has been met. The Executive Board last night finalized its report which has been sent to the IMF's Board of Governors. This outlines where the Board has got to in its discussions on the quota formula. You should all have the report and the press release. The report is not very long and I can take you through some of the key elements.
Basically the Board has agreed on several areas of the formula review, identified areas of common ground and also some areas where further work is needed. And importantly it has agreed to continue the work on the quota formula with a view to agreeing on a new formula as part of its work on the Fifteenth General Review. I think this underlines why this is important.
So why has the Board not agreed on a new formula now? I think there are two broad issues. One, just to sort of step back a bit and look at the context of agreements on changes on the quota formula, there have actually been very few changes in the Fund's history and the last one was a major one in 2008. Prior to that there hadn't been a change in the formula for almost 30 years. When the 2008 formula was agreed, it was a long, difficult negotiation and there was agreement at that time to come back and look at it again. Typically, these discussions take place in the context in a general review of quotas so that when the Board is agreeing on a new formula, they also know what the implications are for them in terms of their quota shares. I think the sense of the Board in these discussions has been that it has made as much progress as it can on a stand-alone basis, which is the quota formula review, and that the remaining discussions would best be held in the context of the general review when it will be clear what the implications are for individual member’s quotas. So the bigger picture here is that what's most important for the Fund's governance is changes in quota shares and that will happen in the context of the Fifteenth General Review.
There will also between now and then be a further update of the data that the Fund uses for its quota calculation. This will be released probably around the middle of the year. Right now the Board is working with data that will not actually be the final data that will be used for the quota formula for the Fifteenth General Review discussions so that this is another reason why I think there has been a sense that it's too early to finalize the formula and Directors would like to see the final data before concluding the remaining issues.
You have the report, but let me highlight some of the key points of it. I think there has been significant progress in narrowing the issues, highlighting where the common ground is and also highlighting where further work is needed. There's agreement that ultimately this will be a package of reforms so all elements need to be taken into account. If you like, nothing is agreed until everything is agreed. So while there is a lot of progress, final agreement will wait for all elements. As you'll see in the report, there is considerable support in the Board for several elements. There is considerable support for increasing the share of GDP in the quota formula. Currently GDP has a 50 percent weight in the formula and there is considerable support for increasing it. The second area where there is also considerable support is for dropping the measure of variability. This is currently in the formula with a 15-percent weight. This is a measure that attempts to capture members' potential need for Fund resources, but the work that we have done in the context of the review has identified problems with this variable and that it has not proved to be a very good indicator or predictor of members' potential need for resources and so taking account for that, there is considerable support for dropping the variability measure. The third area where there is considerable support is for keeping the reserves variable, which has a small weight in the formula, a 5-percent weight, and there is considerable support for keeping it with its current small weight. The Board also considered various possibilities to add new variables including the possibility of increasing the role of financial openness in the formula, for including a measure that would capture members' financial contributions to the Fund and some other possibilities including a discussion of whether population should be included in the formula. None of those possibilities has attracted sufficient support.
There are a few remaining areas where it's fair to say there are differences of views in the Board and where the work will focus as part of the Fifteenth Review. One of these is on the GDP. As I said, there is considerable support for increasing the weight. But the question that's still left is precisely how much and nothing is decided yet on the weight of GDP. Another issue is on the measurement of the GDP variable. It has two components. One is GDP at market exchange rates, the other is GDP at PDP exchange rates and the mix of those two measures is an area for further work.
The second area where there is still further work to do is on the openness variable, both the weight and also the measurement of the openness variable. And the third area that the board has agreed to continue to discuss is the compression factor. If you look at the formula, when you add up the four variables in the formula, it is all compressed by a factor which 0.95. There's general support for keeping compression but the Board still wants to continue discussing by how much, whether to leave it as it is or change it. There is also agreement that as part of the Fifteenth Review of quotas that's to be completed by January 2014, there's a commitment to protect the Fund's poorest members and there is also agreement to continue discussing whether and how to take account of very significant financial contributions to the Fund through ad hoc adjustments as part of the Fifteenth Review.
Those were the main elements of the report. There is some more detail in the report on the specific positions. The final point I would highlight is that this outcome last night is the product of quite extensive and intense discussions in the Board. In the past year there have been four formal discussions prior to this discussion in the past few days and also informal discussions. The IMFC Deputies have also had three meetings on this topic in March and September last year and earlier this month in Paris. This highlights the importance that the membership attaches to the governance reforms and to continuing to improve the Fund's governance and therefore its effectiveness and legitimacy. I might stop there and be happy to respond to any questions.
MR. MURRAY: Thanks. Before we take questions, I want to clarify or elaborate on one point, the data set, the PPP data set which is central to this discussion or negotiation over the quotas. That is data that is produced by the United Nations? Is that correct? And we are relying on that data set?
SENIOR IMF OFFICIAL: Yes. It's coordinated by the World Bank, but it's an international comparison program I believe it's called. It's a major exercise that's coordinated by the World Bank and the IMF supports it. It involves statistical agencies from around the world. There was a major improvement in these data in 2005 and there is another exercise now underway to update these data. That's what we use for the PPP.
MR. MURRAY: Hence that's the data we're waiting for in a sense at midyear?
SENIOR IMF OFFICIAL: All of the data that we use for the quota formula review will be updated in the middle of this year, probably in June and so that will be the final data base that will be used for the discussions under the Fifteenth General Review.
QUESTION: I was wondering whether given the age-old derision over openness, and it looks like there is some more agreement that it would stay, whether you think that there has been progress made on that issue since that is the biggest position between the Europeans and the emerging economies. Number two, is it at all possible that the quota formula could just be decided by how much quota increases certain countries get in the fifteenth review rather than actually based on data? You would say these countries should increase and therefore we muck around with the quota formula so make sure that that happens.
SENIOR IMF OFFICIAL: I think there has been progress on the discussions on the openness variable. You're right. It has been one of the most important areas of discussion in the review. While you highlighted the importance of the role of openness for the European countries and the emerging market countries, I wouldn't put it quite so starkly as one group versus another because the openness variable is important for all countries and this was one of the things that is important to keep in mind with the quota formula review. We have 188 countries and all of them have very important interests in their stake in the IMF. Many countries benefit from the openness variable and basically the smaller countries stand to benefit from the openness variable in general. The larger countries typically do better with GDP. Statistically that's the way it works, larger countries tend to be relative to their size more closed. So this isn't just an issue of one region versus another, it also runs across larger countries versus smaller countries and it has been an important part of the debate where the Fund has many smaller countries who stress very much their role and that they should have a significant voice in the IMF. The debate runs right across all countries. I think there has been progress. As you'll see in paragraph 11 of the report, there are two elements. If you look at the opening sentence, one is that openness should continue to play an important role in the formula and the other element is the need for the variable to be thoroughly examined and addressed. Both of those elements are agreed and I think that's actually important progress and the work going forward will be on the second part of that sentence, to thoroughly examine and address the concerns that have been raised as part of the Fifteenth Review.
Your second question, I guess you're asking whether the formula could be reverse engineered -- we decide where we want to be and then we work to develop a formula --
QUESTION: It's taken 2 years and they haven't figured anything out yet on the formula, so is another year going to make a difference?
SENIOR IMF OFFICIAL: I think it will. It's more than just a matter of time. As I mentioned at the beginning, an important thing that will happen in the next few months is we will have the data that we'll be using for the final calculations. The experience we've had in the past, as I say, we haven't had many revisions of the formula in the Fund's history. I think there have been basically three with gaps of 20 to 30 years between them, so in many ways what we're doing now is much more ambitious than we've done in the past. But certainly the experience in the 2008 reform which was the first one in almost 30 years was that we only agreed on the formula very much parallel with the broader discussion of the reform so that countries knew when they were agreeing on the formula what they were agreeing to. That's an important reason why it was probably very ambitious to think that we could actually agree on a formula at this point in isolation of what the other elements of the general quota review will be including the data. I think there is reason to be optimistic that we have made progress in the review. We've narrowed down the issues. By the middle of the year we will have the data. And then countries will be able to see what different reforms would mean for them precisely. Right now they can't be totally sure because the data will change. And on that basis I think we'll have a much stronger foundation to complete the discussions.
QUESTION: I'd like to clarify that when you talk about data, what are you looking at?
SENIOR IMF OFFICIAL: The current database, this is data on the various quota formula variables, GDP, openness which is balance of payments data, variability, also balance of payment data in reserves, all of these data currently in the quota database go through 2010 and the update of that data will go through 2011 and that will be finalized in the middle of this year. Why is it only 2011 and not more recent? We use official statistics that are provided by all the countries to our international financial statistics. That's the source for the data that we use for quota calculations. And countries finalize their data on GDP and balance of payments with a lag so that it takes some time to get the critical mass that we need for calculations that involve 188 countries.
QUESTION: Have you got any pointers from the United States yet on when they're going to push forward the 2010 reform, any kind of signal from them when this is going to happen?
SENIOR IMF OFFICIAL: No, I don't have anything more specific other than I know the strong commitment to implement the reforms, but I don't have anything more precise at this point.
QUESTION: I'll follow-up with another one quickly. When you look ahead to the fifteenth quota review, what do think is an outcome that you sense or that the board has expressed to you that they want from that? Are we talking about China moving above Japan here? Are we talking about much more ambitious quotas for emerging markets or more emphasis for the middle-income countries that actually took a loss during the last quota review?
SENIOR IMF OFFICIAL: There hasn't been any substantive discussion of the Fifteenth Review so far on the Board. This is one of the points with the quota formula review is that the focus has been on the formula. Of course everybody has in their mind when they're looking at the formula what it will mean for them in terms of the quota review or what it might mean because the formula itself is only important to the extent that it's used in the actual quota adjustments. Of course the formula has been used extensively in the past. In the 2010 reform it was used to allocate about 60 percent of the overall increase, but there are also other elements that were used then and could be used again in the Fifteenth Review. So far the discussion has been purely on the formula in isolation really, what would be a formula that accurately represents members' relative positions in the world and countries have debated that and have different perspectives on it which is not surprising depending on where they sit, including as I mentioned whether you're a large country or a smaller country. But the discussions so far have been on the formula in isolation of this broader picture, and as I mentioned probably realistically, this was about as far as one could expect to get in these discussions in isolation and I would expect to see more progress in the broader context of the Fifteenth Review.
QUESTION: Thank you for taking this. Could you little bit elaborate about the positions of the United States and Europe and Japan in the BRIC countries -- about openness? Thank you.
MR. MURRAY: I think that's going to be difficult for us to do at this point. We prefer that the individual countries themselves elaborate on their positions. It's inappropriate for us. We provide the technical backup for their discussions. While the process is fairly transparent, it's not our call whether we elaborate on their individual positions. But certainly ask the various country representatives what their views are.