## Distribution of Quotas and of Updated Quota Formula Variables

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### I. Introduction and Mandate
- IMFC encouraged the Board to consider further issues of quotas and voice; progress requires broad consensus among shareholders.
- IMFC emphasized:
  - the IMF’s effectiveness and credibility as a cooperative institution must be safeguarded and further enhanced;
  - adequate voice by all members should be assured;
  - the distribution of quotas should reflect developments in the world economy.
- Thirteenth General Review period provides an opportunity to progress toward consensus.
- Paper purpose:
  - takes stock of progress in quota discussions to date;
  - examines options for adjustments in quotas or voting power outside of a general quota increase.
- Paper organization (as stated):
  - Section II: status of recent quota discussions;
  - Section III: results of updating the data through 2003;
  - Section IV: options for addressing distribution of quotas and voting power outside a general increase;
  - Section V: conclusions and issues for discussion.

### II. General Quota Reviews and Fund Liquidity
- Historical and timing context:
  - Twelfth General Review concluded on January 30, 2003 by Board of Governors resolution without an increase in quotas.
  - Thirteenth General Review must be concluded by January 2008.
- Fund liquidity (staff assessment referenced):
  - one-year forward commitment capacity (FCC) amounted to SDR 94 billion compared to SDR 55 billion at end-2002.
  - staff concluded the Fund would likely be able to meet projected near-term needs; adequacy to be monitored in semi-annual liquidity reviews.
- Emphasis during Thirteenth General Review:
  - heightened emphasis on voice and governance issues;
  - Executive Board pursuing two complementary tracks: distribution of quotas/voting power and measures to enhance administrative capacity of Executive Directors’ offices elected by developing and transition members.

### III. Quota Formula Variables and Board Understandings
- General understanding:
  - Board endorsed a simpler and more transparent approach for variables in a new quota formula.
  - Limit consideration to three or four variables used in existing quota formulas, updated and modernized.
  - Candidate variables: GDP, measures of openness, variability, and possibly official international reserves.
- Variable specifics:
  - GDP: three-year average of GDP at market exchange rates preferred by a “majority of the Board”.
  - Openness: absolute sum of current receipts and current payments averaged over a five-year period favored by most Directors.
  - Variability: measure of variability of current receipts and net capital flows, specified as deviations from a three-year average to smooth trends.
  - Reserves: seen as useful by many Directors; some argued for exclusion for members with market access.
- Weights:
  - many Directors supported selecting weights mainly on economic judgment; acknowledged correlation among variables requires Executive Board judgment.

### IV. Updated Quota Calculations (data through 2003) — Data and Methods
- Data coverage and sources:
  - Data updated for 184 members through 2003.
  - Sources: International Financial Statistics (IFS) and the World Economic Outlook (WEO); missing series computed from Country Desk Data, staff reports, and in a few instances, Eleventh Quota Review data.
  - Coverage: current receipts and net capital flows (1991–2003), current payments (1999–2003), GDP (2001–03), reserves (monthly data for 2003), all in SDRs.
  - Some customary data adjustments (exclusion of goods for processing, international banking interest, and official transfers) were not made.
- Application:
  - Existing five formulas applied to updated dataset to estimate calculated quotas and quota shares for all members; results summarized in tables for country groups and individual members.

### V. Key Findings on Distributional Impacts (selected exact figures)
- Calculated quota shares for main country groups broadly similar to results using data through 2002.
- Share changes and selected exact aggregate calculated quotas (columns correspond to: Actual Quotas; Five Formulas (updated); Five Formulas (previous); GDP 2001-03; Openness 1999-2003; Variability 1991-2003; Reserves 2003):
  - Advanced economies: 61.6 percent; 67.6 percent; 68.3 percent; 77.1 percent; 70.6 percent; 61.6 percent; 43.8 percent.
  - Major advanced economies: 46.0; 47.9; 48.8; 66.0; 50.0; 43.9; 32.9.
  - United States (of which): 17.4; 17.2; 17.8; 31.8; 16.2; 20.1; 3.3.
  - Other advanced economies: 15.6; 19.6; 19.5; 11.1; 20.6; 17.8; 10.9.
  - Developing countries: 30.9; 27.7; 27.0; 19.9; 24.8; 31.6; 48.6.
  - Africa: 5.5; 2.3; 2.3; 1.5; 1.9; 3.7; 3.2.
  - Asia (including Korea and Singapore): 10.3; 15.8; 14.9; 10.0; 14.2; 14.1; 32.0.
  - Middle East, Malta and Turkey: 7.6; 4.5; 4.6; 3.0; 3.7; 6.1; 6.3.
  - Western Hemisphere: 7.5; 5.1; 5.2; 5.4; 5.1; 7.7; 7.1.
  - Transition economies: 7.5; 4.7; 4.7; 3.1; 4.5; 6.8; 7.6.
  - Total: 100.0 across columns.
- Implication: quota adjustments based on proposed variables and weights would increase Asia’s quota share but tend to reduce shares of other developing sub-groups; developing and transition economies as a whole would tend to see a decline while advanced economies’ share would increase.

### VI. Out-of-lineness and Members Identified
- Criterion: ratio of each member’s calculated to actual quota share using existing five formulas.
- Preliminary results with updated data indicate 16 countries whose calculated quota shares exceed actual quota shares by more than 50 percent:
  - Bahrain, Botswana, China, Equatorial Guinea, Estonia, Ireland, Korea, Luxembourg, Malaysia, Mexico, Oman, San Marino, Singapore, Thailand, Timor-Leste, United Arab Emirates.
- Historical comparison: earlier measurements identified eight consistently out-of-line members: Bahrain, Botswana, Ireland, Korea, Luxembourg, Singapore, Thailand, and Turkey.

### VII. Institutional and Legal Constraints
- Articles of Agreement provisions cited (exact text references):
  - Board of Governors must at intervals of not more than five years conduct a general review and may propose an adjustment of quotas (Article III, Section 2 (a)).
  - Board of Governors may consider adjustment of any particular quota at any other time at member’s request (Article III, Section 2 (a)).
  - Any change in quotas requires an 85 percent majority of the total voting power (Article III, Section 2 (c)).
  - A member’s quota may not be changed without that member’s consent (Article III, Section 2 (d)).
- No formal adoption of a specific formula by the Executive Board; agreed measures of relative economic position used in practice.

### VIII. Options for Adjustments in Quotas and Voice (three broad avenues)
- General characterization:
  - Adjustments can occur within or outside general reviews and can be directed increases or decreases, subject to Articles and high-majority voting and consent constraints.
  - General quota increases historically main vehicle; they typically include a large equiproportional element.
  - The “adjustment coefficient” (measure of reduction in deviation between actual and calculated quota shares) has varied from 1.7 percent to 28.0 percent since the Fifth Review.
- Three broad avenues:
  - Ad hoc quota increases (features and past use)
    - Purpose: address relative position of individual members or special circumstances.
    - Characteristics: used sparingly; can be stand-alone or within general reviews; do not reduce other members’ actual quotas but reduce other members’ actual quota shares.
    - Historical application: four ad hoc increases agreed outside general reviews since early 1970s; Eleventh General Review ad hoc component was 10 percent of overall increase (9 percent distributed to 38 members with ratios >1; 1 percent to five members: Korea, Luxembourg, Singapore, Malaysia, and Thailand).
    - Assessment: can play a role but limited in number and scale; broader use likely requires agreement on a new quota formula as eligibility basis.
  - Voluntary adjustments (mechanism and examples)
    - Mechanism: members voluntarily accept a reduction in their quota shares as part of an overall quota increase, facilitating ad hoc increases for others by offsetting their effect on broader membership.
    - Key difference vs past: voluntary reductions of actual quotas (not just shares) would require some members to accept actual quota reductions, giving them effective veto over redistribution.
    - Examples: Fifth Review (voluntary reduction in United Kingdom’s quota share); Sixth Review (industrial countries accepted lower share to match increases for major oil-exporting countries); Ninth Review (G-7 matched redistribution to accommodate Japan’s ad hoc request).
    - Implication: redistribution in absence of a general quota increase could imply reduction in Fund’s usable currencies, affecting liquidity.
  - Increase in basic votes
    - Article XII, Section 5: each member shall have 250 “basic” votes plus one vote for each SDR 100,000 of quota.
    - Absolute basic votes unchanged since Bretton Woods; share of basic votes in total voting power declined from 11 percent to just over 2 percent at present.
    - Table excerpts (selected exact rows):
      - Present 2/ 3/: Number of Members 184; Total Votes 2,176,037; Number Basic Votes 46,000; Percent of Total 2.1.
      - 1998 2/: Number of Members 183; Total Votes 2,166,040; Number Basic Votes 45,750; Percent of Total 2.1.
      - 1990: Number of Members 152; Total Votes 1,387,910; Number Basic Votes 38,000; Percent of Total 2.7.
    - Options examined:
      - Increasing basic votes by same fixed amount for all members.
      - Establishing total basic votes as fixed percentage of total quotas.
      - Increasing basic votes only for a particular category (e.g., small or developing countries).
    - Any change requires amendment of the Articles and the same broad majority as amendment.

### IX. Package Approach, Constraints, and Administrative Capacity
- Most Directors saw merit in a package combining:
  - a general quota increase with selective element allocated by a new quota formula;
  - ad hoc quota increases for members far out-of-line;
  - an increase in basic votes to correct erosion of voting power of smallest members.
- Constraints:
  - Required majority for all elements of such a package does not exist at present.
  - Most Directors recognized no need for a quota increase given the Fund’s satisfactory liquidity position at the time.
  - An increase in basic votes would require an amendment of the Articles.
- Administrative capacity measures for large multi-country constituencies:
  - Executive Board actions April 2003: Executive Directors with twenty or more member countries—including Executive Directors from sub-Saharan Africa—may add three persons to the staff in their offices.
  - Technical note (March 2003) suggested technological support, facilitation of intra-constituency interaction, providing developing country chairs with technical and research support, adding advisors, adding a second Alternate Executive Director (would require Articles amendment).

### X. Conclusions, Trade-offs, and Issues for Discussion
- Summarized findings:
  - Updating the quota database through 2003 does not significantly change earlier conclusions: formulas with substantial weight for GDP are likely to yield larger quota share for advanced economies and smaller share for developing and transition economies as groups, though redistributions within groups may be significant.
  - Agreement on a new quota formula remains important; progress made but differences remain on variables.
  - A new formula alone is unlikely to address broader voice questions because past adjustments have been gradual and updates to variables yield limited change.
  - Articles provide flexibility: adjustments can occur at any time, within or outside general review, and Board can determine basis for adjustments.
- Three broad non-general-increase options (can be used singly or combined):
  - Ad hoc increases for selected countries whose quotas are most out of line.
  - Voluntary adjustments among country groups or individual members; implications for Fund liquidity need consideration.
  - Increase in basic votes; would affect voting power distribution but requires Article amendment.
- Issues for Director discussion (as posed):
  - Assessment of scope for progress on distribution of quotas and voting power absent a general quota increase.
  - Which options for addressing voice issues are most promising; whether further staff work to explore combinations is warranted.
  - Whether agreement on a new quota formula should be part of any adjustment in actual quotas; prospects for narrowing differences; whether further staff work on a simpler, more transparent quota formula should proceed in parallel with broader options.

*IMF staff paper, “Distribution of Quotas and of Updated Quota Formula Variables” (excerpts provided).*

### 1.  Distribution of Quotas and of Updated Quota Formula Variables ..............................11

### 1.  Distribution of Quotas and of Updated Quota Formula Variables

### I. Introduction and Mandate
- IMFC encouraged the Board to consider further issues of quotas and voice and noted that progress will require broad consensus among the shareholders.
- The IMFC emphasized that:
  - the IMF’s effectiveness and credibility as a cooperative institution must be safeguarded and further enhanced;
  - adequate voice by all members should be assured;
  - the distribution of quotas should reflect developments in the world economy.
- The period of the Thirteenth General Review of Quotas provides an opportunity for the membership to make progress toward a consensus on these issues.
- Directors, during the March 28, 2005 medium-term strategy discussion, reconfirmed:
  - the importance of adequate voice by all members;
  - that distribution of quotas reflecting developments in the world economy enhances perceived legitimacy and effectiveness.
- Paper purpose:
  - takes stock of progress in quota discussions to date;
  - examines options for adjustments in quotas or voting power outside of a general quota increase.
- Paper organization (as stated):
  - Section II: status of recent quota discussions;
  - Section III: results of updating the data through 2003;
  - Section IV: options for addressing distribution of quotas and voting power outside a general increase (including ad hoc increases without offsets; upward adjustments offset by voluntary declines elsewhere; and increase in basic votes);
  - Section V: conclusions and issues for discussion.

*Italic source attribution: IMF staff paper, “Distribution of Quotas and of Updated Quota Formula Variables” (excerpts provided).*

### II. General Quota Reviews and Status of Quota Discussions
- Twelfth General Review of Quotas:
  - concluded on January 30, 2003 by a resolution of the Board of Governors without an increase in quotas.
  - Board of Governors noted the Executive Board’s intention during the period of the Thirteenth General Review “to monitor closely and assess the adequacy of Fund resources, to consider measures to achieve a distribution of quotas that reflects developments in the world economy, and to consider measures to strengthen the governance of the Fund.”
- Thirteenth General Review: must be concluded by January 2008.
- Fund liquidity review (April of the year referenced):
  - staff concluded the Fund’s current and prospective position is satisfactory.
  - one-year forward commitment capacity (FCC) amounted to SDR 94 billion compared to SDR 55 billion at end-2002.
  - staff concluded the Fund would likely be able to meet projected near-term needs of its members, particularly in the context of the global economic recovery, but continued monitoring is important.
  - adequacy of Fund resources to be monitored in semi-annual liquidity reviews.
- Emphasis during the Thirteenth General Review period:
  - heightened emphasis on voice and governance issues.
  - Executive Board pursuing two complementary tracks:
    - distribution of quotas and voting power (as part of the work program on quotas);
    - measures to enhance administrative capacity of offices of Executive Directors elected by developing and transition member countries.
  - Reports on quotas and voice were issued to the IMFC and Development Committee in 2003, 2004, and 2005.

### III. Evolution of Executive Board Size and Administrative Capacity Measures (Box 1 — Key Points)
- Historical evolution:
  - Board size and structure have evolved since 1946 (see Appendix I in source).
  - Increase in chairs from 12 to 20 through the 1970s due to large increase in Fund membership and new sources of economic dynamism.
  - Two chairs were created to accommodate new African members (one each added in 1963 and 1964).
  - 1972 understanding: two Executive Directors elected by the African members for efficient conduct of Board business; confirmed in 1978 Second Amendment of the Articles.
  - Current 24 chairs reflect addition of chairs for China and Saudi Arabia, increase in membership by CIS and Eastern European countries, and Switzerland.
- Administrative/technical capacity initiatives for large multi-country constituencies:
  - technical note (March 2003) suggested:
    - extra technological support to facilitate communications with capitals;
    - facilitation of intra-constituency interaction;
    - providing developing country chairs with technical and research support;
    - adding advisors to Executive Directors’ offices;
    - adding a second Alternate Executive Director (would require Articles amendment).
  - Executive Board actions:
    - April 2003: Executive Directors with twenty or more member countries—including Executive Directors from sub-Saharan Africa—may add three persons to the staff in their offices.
    - Initiatives include new technology to facilitate communication and additional training for new Executive Directors’ staff.
  - Need to sustain efforts: ensure incoming Board members and staff receive timely comprehensive information and periodically review effectiveness of measures taken.

### IV. Progress on Quota Formula Metrics (Box 2 — Specification of Variables)
- General understanding:
  - Board endorsed a simpler and more transparent approach for variables in a new quota formula to replace existing quota formulas.
  - Variables should be indicators of members’ relative positions in the world economy.
  - Agreement to limit consideration to three or four variables used in existing quota formulas, but updated and modernized.
  - Candidate variables: GDP, measures of openness, variability, and possibly official international reserves.
- GDP:
  - General agreement that three-year average of GDP at market exchange rates is the most important variable to include.
  - Market exchange rates preferred over purchasing power parity by a “majority of the Board” (as discussed in October 2001).
- Openness:
  - Most Directors supported inclusion of openness variable specified as absolute sum of current receipts and current payments averaged over a five-year period.
  - Data difficulties noted in broadening measure to include financial openness.
  - Concerns about correlation with other variables and trade within currency unions.
- Variability:
  - Many Directors supported inclusion of a measure of variability of current receipts and net capital flows to capture vulnerability to balance of payments shocks.
  - Agreement that variability be specified as deviations from a three-year average to smooth trends.
- Reserves:
  - Many Directors saw reserves as useful indicator of members’ financial strength and favored retention.
  - Some Directors argued reserves are of declining importance for members with capital market access and should be excluded.
- Weights:
  - Many Directors supported selecting weights mainly on basis of judgments about relative importance of variables on economic grounds.
  - Recognized that correlation among variables means coefficients cannot be interpreted strictly as relative importance; Executive Board judgment required.

### V. Views on Distributional Implications and Moving Forward
- Observed pattern:
  - For a number of countries, actual quota shares are considerably lower than calculated quota shares almost regardless of formula used.
  - Conversely, many countries have actual quota shares higher than calculated shares.
  - Some Directors viewed this as underscoring need for a political decision to strengthen representation of developing countries.
- Range of views:
  - Some Directors cautioned against targeting an a priori distribution between groups of countries.
  - Interest by a few Directors in voluntary subgroup reductions in quota shares to allow increases for others.
  - A few Directors called for better representation of transition countries.

### VI. Package Approach and Constraints
- Most Directors saw merit in a package of measures combining:
  - a general quota increase with the selective element allocated by means of a new quota formula;
  - ad hoc quota increases aimed at members whose actual quota shares are considerably smaller than calculated quota shares;
  - an increase in basic votes to correct erosion of voting power of smallest members.
- Constraints and practical considerations:
  - Required majority for all elements of such a package does not exist at present.
  - Most Directors recognized no need for a quota increase given the Fund’s satisfactory liquidity position at the time.
  - An increase in basic votes would require an amendment of the Articles of Agreement.

*Italic source attribution: IMF staff paper, “Distribution of Quotas and of Updated Quota Formula Variables” (excerpts provided).*

### 11.      Staff circulated a paper in August 2004 updating the data set used for

### _090205a - 11.      Staff circulated a paper in August 2004 updating the data set used for

### Updated quota calculations (data and methods)
- Data updated for 184 members through 2003.
- Data sources: International Financial Statistics (IFS) and the World Economic Outlook (WEO); missing series computed from the Country Desk Data database, staff reports, and in a few instances, data from the Eleventh Quota Review.
- Coverage in the updated data: current receipts and net capital flows (1991–2003), current payments (1999–2003), GDP (2001–03), and reserves (monthly data for 2003), all in SDRs.
- Some customary data adjustments (exclusion of goods for processing, international banking interest, and official transfers from current account data) were not made in these calculations.
- The existing five formulas were applied to the updated dataset to estimate calculated quotas and quota shares for all members; results summarized in Table 1 (country groups) and Table A3 (individual members).

### Key findings on distributional impacts
- Calculated quota shares for main country groups are broadly similar to results using data through 2002.
- The share of the advanced economies declines by about one percentage point but remains well above their actual quota share.
- Calculated quota share of developing countries as a group increases, driven by a further increase for the Asian economies.
- Aggregate calculated quotas:
  - Advanced economies: 61.6 percent (Actual Quotas), 67.6 percent (Five Formulas (updated)), 68.3 percent (Five Formulas (previous)), 77.1 percent (GDP 2001-03), 70.6 percent (Openness 1999-2003), 61.6 percent (Variability 1991-2003), 43.8 percent (Reserves 2003).
  - Major advanced economies: 46.0, 47.9, 48.8, 66.0, 50.0, 43.9, 32.9 (same column order as above).
  - United States (of which): 17.4, 17.2, 17.8, 31.8, 16.2, 20.1, 3.3.
  - Other advanced economies: 15.6, 19.6, 19.5, 11.1, 20.6, 17.8, 10.9.
  - Developing countries: 30.9, 27.7, 27.0, 19.9, 24.8, 31.6, 48.6.
  - Africa: 5.5, 2.3, 2.3, 1.5, 1.9, 3.7, 3.2.
  - Asia (including Korea and Singapore): 10.3, 15.8, 14.9, 10.0, 14.2, 14.1, 32.0.
  - Middle East, Malta and Turkey: 7.6, 4.5, 4.6, 3.0, 3.7, 6.1, 6.3.
  - Western Hemisphere: 7.5, 5.1, 5.2, 5.4, 5.1, 7.7, 7.1.
  - Transition economies: 7.5, 4.7, 4.7, 3.1, 4.5, 6.8, 7.6.
  - Total: 100.0 across columns.
- Implication: quota adjustments based on economic and financial variables and previously considered weights would increase Asia’s quota share but tend to reduce shares of other developing sub-groups; developing and transition economies as a whole would tend to see a decline while advanced economies’ share would increase.

### Out-of-lineness (ratio of calculated to actual quota shares)
- Criterion applied: ratio of each member’s calculated to actual quota share using the existing five formulas.
- Preliminary calculations with updated data indicate 16 countries whose calculated quota shares exceed actual quota shares by more than 50 percent.
- The 16 members identified: Bahrain, Botswana, China, Equatorial Guinea, Estonia, Ireland, Korea, Luxembourg, Malaysia, Mexico, Oman, San Marino, Singapore, Thailand, Timor-Leste, and United Arab Emirates.
- Historical note: previous measurements using multiple formula variants identified a smaller consistent group (eight members: Bahrain, Botswana, Ireland, Korea, Luxembourg, Singapore, Thailand, and Turkey).

### Institutional and legal constraints on quota adjustments
- Articles of Agreement relevant provisions cited:
  - Board of Governors must at intervals of not more than five years conduct a general review and may propose an adjustment of quotas (Article III, Section 2 (a)).
  - Board of Governors may consider adjustment of any particular quota at any other time at member’s request (Article III, Section 2 (a)).
  - Any change in quotas requires an 85 percent majority of the total voting power (Article III, Section 2 (c)).
  - A member’s quota may not be changed without that member’s consent (Article III, Section 2 (d)).
- No formal adoption of a specific formula by the Executive Board; in practice, agreed measures of relative economic position have been useful for allocating selective quota increases and assessing eligibility for ad hoc increases.

### Options for adjustments in quotas and voice (overview)
- Adjustments can occur within or outside general reviews and can be directed increases or decreases, subject to Articles and high-majority voting and consent constraints.
- General quota increases have been the main vehicle historically; these typically include a large equiproportional element, producing gradual shifts in quota shares.
- The “adjustment coefficient” (measure of reduction in deviation between actual and calculated quota shares) has varied from 1.7 percent to 28.0 percent since the Fifth Review.
- Absence of a general increase need not prevent adjustments in quota and voting shares if sufficient consensus is achieved.
- Three broad avenues available for adjustments (text introduces ad hoc increases, voluntary adjustments, and other approaches).

### Ad hoc quota increases (features and past use)
- Purpose: address relative position of individual members or special circumstances.
- Characteristics:
  - Used sparingly; can be stand-alone or within general reviews.
  - Do not reduce other members’ actual quotas but reduce other members’ actual quota shares.
  - Magnitude of impact on other members’ shares depends on size of ad hoc adjustments.
- Historical application:
  - Four ad hoc increases agreed outside general reviews since early 1970s; Japan received an ad hoc increase in the Ninth General Review.
  - In the Eleventh General Review, the ad hoc component was 10 percent of the overall increase:
    - 9 percent distributed to 38 members with ratios of calculated to actual quota shares greater than one.
    - 1 percent distributed to five members (Korea, Luxembourg, Singapore, Malaysia, and Thailand) whose quotas were farthest out of line and who were expected to be able to contribute to the Fund’s liquidity over the medium term.
- Assessment: ad hoc increases can play a role but are typically limited in number and scale; broader use would likely require agreement on a new quota formula as a common eligibility basis.

### Voluntary adjustments (mechanism and examples)
- Mechanism: in some reviews, members voluntarily accepted a reduction in their quota shares as part of an overall quota increase, facilitating ad hoc increases for others by offsetting their effect on broader membership.
- Typical arrangement elements:
  - (i) an overall increase in total quotas; and
  - (ii) agreement by a member or group of members to accept a lower increase than equiproportional.
- Examples cited: reduction in quota share of the United Kingdom in the Fifth General Review; industrial countries agreeing to accept a lower share in the Sixth General Review to accommodate larger increases for major oil-exporting countries; realignment of quota shares among G-7 during the Ninth General Review.

*Source: IMF staff paper (updated quota calculations and discussion of quota adjustment options, data through 2003).*

### 26.      Agreement on a voluntary quota reduction by a member or a group of

### 26.      Agreement on a voluntary quota reduction by a member or a group of 

### Voluntary quota reductions: concept and implications
- Agreement on a voluntary quota reduction by a member or a group of members could facilitate a broader adjustment in quota shares even in the absence of a general quota increase.
- A key difference with the past is that this would require some members to agree that their actual quotas would be reduced, thus giving these members an effective veto over a desired redistribution of quota shares.
- Redistribution of quotas in the absence of a general quota increase could imply a reduction in the Fund’s usable currencies, with implications for the Fund’s liquidity.

### Experience with voluntary adjustments (Box 4): historical examples and mechanics
- Voluntary reductions in quota shares by some members have helped facilitate agreement on requests for ad hoc increases for other members by limiting the impact of such increases on the broader membership.
- In practice, voluntary reductions in quota shares have taken place in the context of general quota increases, though voluntary reductions in actual quotas could take place without a general quota increase if members agreed to such reductions.
- Examples:
  - Fifth General Review: Agreement among a group of industrial countries resulted in a voluntary reduction in the United Kingdom’s quota share to accommodate increases in quota shares of other members. As a result, the quota shares of 78 members increased by amounts larger than the equiproportional increase, offset by an increase in the quota of the United Kingdom that was less than the equiproportional increase.
  - Sixth General Review: An agreement among a larger group of industrial countries matched an increase in the quota share of the major oil-exporting countries as a group with a decline in the share of the industrial countries in total quotas.
  - Ninth Review: Japan’s request for an ad hoc increase was facilitated by agreement among the Group of Seven (G-7) countries to accept voluntary reductions in quota shares; there was a redistribution of quota increases among the G-7 so that quota increases for the rest of the membership were unaffected.

### Basic votes: structure, evolution, and options
- Article XII, Section 5: each member shall have 250 “basic” votes plus one vote for each SDR 100,000 of quota.
- The absolute level of basic votes has not been changed since the Bretton Woods Agreement, resulting in a decline in the share of basic votes in total voting power from 11 percent to just over 2 percent at present.
- Table 3: Relative Importance of Basic Votes, 1945-Present — selected rows (as presented):
  - Schedule A 1/: Number of Members 45; Total Votes 99,390; Number Basic Votes 11,250; Percent of Total 11.3
  - 1958: Number of Members 68; Total Votes 108,930; Number Basic Votes 17,000; Percent of Total 15.6
  - 1965: Number of Members 101; Total Votes 179,928; Number Basic Votes 25,250; Percent of Total 14.0
  - 1970: Number of Members 115; Total Votes 236,835; Number Basic Votes 28,750; Percent of Total 12.1
  - 1976: Number of Members 132; Total Votes 319,714; Number Basic Votes 33,000; Percent of Total 10.3
  - 1978: Number of Members 140; Total Votes 432,415; Number Basic Votes 35,000; Percent of Total 8.1
  - 1983: Number of Members 145; Total Votes 646,415; Number Basic Votes 36,250; Percent of Total 5.6
  - 1990: Number of Members 152; Total Votes 1,387,910; Number Basic Votes 38,000; Percent of Total 2.7
  - 1998 2/: Number of Members 183; Total Votes 2,166,040; Number Basic Votes 45,750; Percent of Total 2.1
  - Present 2/ 3/: Number of Members 184; Total Votes 2,176,037; Number Basic Votes 46,000; Percent of Total 2.1
- Options examined for increasing basic votes:
  - Increasing the number of basic votes by the same fixed amount for all members.
  - Establishing the total number of basic votes as a fixed percentage of total quotas.
  - Increasing the number of basic votes by a fixed amount only for members belonging to a particular category (e.g., small or developing countries).
- Any change in basic votes would require an amendment of the Articles; such broad support has not so far existed. Proposals for changes have traditionally been considered in the context of general quota reviews and require the same broad majority as is needed for amendment of the Articles.

### Conclusions and issues for discussion (summarized findings and options)
- Updating the quota database through 2003 does not significantly change earlier broad conclusions: quota formulas using economic and financial variables and weights considered broadly appropriate by the Board in the past—including a substantial weight for GDP—are likely to yield results implying a larger quota share for the advanced economies and a smaller share for the developing and transition economies as a group, though it could involve significant redistribution within that group.
- Agreement on a new quota formula remains an important objective; considerable progress was made in past Board discussions toward a simpler and more transparent formula, but differences remain on the variables to be included.
- Agreement on a new formula alone is unlikely to address broader questions regarding voice in the Fund because past quota adjustments have been gradual and updates to key quota variables yield limited change.
- The Fund’s Articles provide substantial flexibility: adjustments can take place at any time, in the context of or outside a general review, and the Board has flexibility in determining the basis for adjustments.
- Three broad options for adjustments in the absence of a general increase (which could be explored individually or in combination):
  - Ad hoc increases for selected countries whose quotas are most out of line; such increases have been agreed in the past and could be accommodated without necessarily requiring a reduction in other members’ actual quotas (though quota shares would decline for all other members).
  - Voluntary adjustments among country groups or individual members; implemented in the past in the context of general quota increases but not where reductions in some members’ actual quotas would be needed; implications for Fund liquidity would need consideration.
  - Increase in basic votes; would affect distribution of voting power—particularly for the Fund’s smallest members—without adjustment in quotas, but requires an amendment of the Articles and may not by itself be sufficient to address broader concerns about relative voting power.
- To some extent these options address two distinct but related issues:
  - Ensuring that the distribution of quotas adequately reflects developments in the world economy (ad hoc increases can play a role).
  - Strengthening the voice of developing and transition economies as a whole (may require voluntary adjustments in quotas and/or raising basic votes).
- Issues for Director discussion (as posed in the paper):
  - Assessment of overall scope for progress on distribution of quotas and voting power in the absence of a general quota increase.
  - Which options for addressing voice issues are most promising, including the three options identified; whether further staff work is warranted to explore combinations of these options.
  - Whether agreement on a new quota formula should be part of any adjustment in actual quotas, prospects for narrowing remaining differences, and whether further staff work on a new, simpler, and more transparent quota formula should be undertaken in parallel with exploration of broader options.

_Italic source: IMF paper section 26 and accompanying sections from the Thirteenth General Review of Quotas (as provided in the supplied content)._

### Section 3 (b) (ii) and (c), initial version.

### _090205a - Section 3 (b) (ii) and (c), initial version

### Executive Board size, composition, and Article XII amendments
- Article XII, Section 3 (b) (ii) and (c) was amended to allow the respective members the option of not appointing an Executive Director and of participating instead in the election of Executive Directors.
- Historical applications and decisions:
  - Resolution No. 27-12, effective August 31, 1972, and subsequent confirmations at the Second Amendment continued to guide regular elections of Executive Directors.
  - Board of Governors Resolution No. 36-3, effective April 27, 1981, reaffirmed that the Fund, when determining the number of Executive Directors to be elected in each regular election, shall continue to be governed by objectives including the desirability of broadly maintaining existing geographical balance.
  - In 1978, Saudi Arabia became entitled to appoint an Executive Director under Article XII, Section 3 (c).
  - In 1980, China had sufficient votes to elect its own individual Director; to accommodate this without upsetting previous constituency outlines the Board of Governors increased the number of elected Executive Directors to 16, bringing the total number of chairs to 22 (Board of Governors Resolution No. 35-8, effective September 8, 1980).
  - In 1992, the Board of Governors agreed to increase the number of elected Executive Directors to 19 (Board of Governors Resolution No. 47-19, effective September 22, 1992). With the five members with the largest quotas appointing Executive Directors, the total number of Executive Directors in the Board now stands at 24.

### Historical table of Executive Directors (Table A1) — selected entries preserved exactly
- Regular Election — Appointed — Elected — Total
  - 1946 — 5 — 7 — 12
  - 1947 (interim election) — 5 — 8 — 13
  - 1948 (interim election) — 5 — 9 — 14
  - 1952 — 5 — 11 — 16
  - 1956 — 5 — 12 — 17
  - 1958 — 6 — 12 — 18 (1/ Canada appointed an Executive Director under Article XII, Section 3 (c).)
  - 1960 — 5 — 13 — 18
  - 1963 (interim election) — 5 — 14 — 19
  - 1964 — 5 — 15 — 20
  - 1968 — 6 — 14 — 20 (2/ Italy appointed an Executive Director under Article XII, Section 3 (c).)
  - 1970 — 6 — 14 — 20 (3/ Japan appointed an Executive Director upon becoming one of the five largest quota-holders with the effectiveness of its quota under the Fifth General Review.)
  - 1978 — 6 — 15 — 21 (4/ Saudi Arabia appointed an Executive Director under Article XII, Section 3 (c).)
  - 1980 — 6 — 16 — 22 (5/ Saudi Arabia appointed an Executive Director under Article XII, Section 3 (c).)
  - 1992 — 5 — 19 — 24

### Quotas: objectives, general reviews, and recent outcomes
- Quotas determination and review:
  - A Fund member’s quota is broadly determined by its economic position relative to other members; factors include GDP, current account transactions, and official reserves.
  - Changes in quotas require approval by an 85 percent majority.
  - The Articles provide for General Reviews of Quotas by the Board of Governors at intervals of not more than five years (Article III, Section 2).
- Objectives of five-yearly regular reviews:
  - Ensure the Fund has sufficient resources to fulfill responsibilities.
  - Ensure the distribution of quotas adequately reflects developments in the world economy.
  - Reviews focus on: the role and size of the Fund; the adequacy of Fund resources and the need for a possible quota increase; the distribution of quotas including possible changes to quota formulas; and governance and representation.
- Historical review outcomes and timing:
  - Of the twelve general reviews conducted so far, five concluded that no increase in quotas was needed.
  - Ad-hoc quota increases have been rare; China was granted a higher quota in 2001 following its resumption of sovereignty over Hong Kong SAR.
  - The Eleventh Review took effect in January 1999 with a 45 percent overall increase.
  - The Twelfth General Review concluded on January 30, 2003 with no proposal to increase quotas.
  - The Thirteenth General Review period began after the Twelfth and is to be completed by January 30, 2008.
- Eleventh Review specifics:
  - 45 percent overall increase (effective January 1999).
  - 25 percent of the quota increase was selective:
    - 15 percent of the total increase (three-fifths of the selective element) was distributed to all members.
    - 10 percent of the total increase was distributed to countries with ratios of calculated to actual quotas above one; 38 members met this criterion.

### Calculated quotas, actual quotas, and convergence
- Calculated quotas:
  - The Board has relied on quota formulas as an independent measure of members’ relative economic size; the calculated quotas often differ from actual quotas.
  - In the most recent quota review noted here, actual quotas were on average less than half of calculated quotas.
- Distribution mechanics for increases:
  - Increases during general reviews typically consist of an equiproportional element (distributed according to existing quota shares) and a selective element (distributed to all members or a subset to change quota shares).
  - Since the Eighth Review (1983), selective quota increases have been allocated to all members in proportion to their calculated quotas.
- Convergence index:
  - Defined as 100 percent minus the aggregate of positive (or aggregate of negative) deviations of actual from calculated quota shares.
  - Until recently, quota adjustments have on average restored the convergence index to a level prevailing just after previous general reviews.

### Quota formulas — history, structure, and Box A1 exact formulas
- Evolution:
  - Original Bretton Woods formula variables: national income; reserves; merchandise imports; variability of exports; multiplicative factor increasing role of exports relative to national income.
  - Revisions in 1962/63 introduced Set I and Set II data and derivative formulas emphasizing trade and variability; a ten-formula dual structure resulted.
  - Simplified and updated in 1981/82: focus on Set II data, nominal income replaced with GDP, reserves broadened, variability coefficients reduced; no changes since 1983.
- Box A1 — Current five formulas (used from the Eighth to the Eleventh Reviews) preserved exactly:
  - Bretton Woods: Q1 = (0.01Y + 0.025R + 0.05P + 0.2276VC) (1 + C/Y);
  - Scheme III: Q2 = (0.0065Y + 0.0205125R + 0.078P + 0.4052VC) (1 + C/Y);
  - Scheme IV: Q3 = (0.0045Y + 0.03896768R + 0.07P + 0.76976VC) (1 + C/Y);
  - Scheme M4: Q4 = 0.005Y + 0.042280464R + 0.044 (P + C) + 0.8352VC;
  - Scheme M7: Q5 = 0.0045Y + 0.05281008R + 0.039 (P + C) + 1.0432VC;
  - where:
    - Q1, Q2, Q3, Q4 and Q5 = Calculated quotas for each formula;
    - Y = GDP at current market prices for a recent year;
    - R = twelve-month average of gold, foreign exchange reserves, SDR holdings and reserve positions in the IMF, for a recent year;
    - P = annual average of current payments (goods, services, income, and private transfers) for a recent five-year period;
    - C = annual average of current receipts (goods, services, income, and private transfers) for a recent five-year period; and
    - VC = variability of current receipts, defined as one standard deviation from the centered five-year moving average, for a recent 13-year period.
  - For each of the four non-Bretton Woods formulas, quota calculations are multiplied by an adjustment factor so that the sum of the calculations across members equals that derived from the Bretton Woods formula.
  - The calculated quota of a member is the higher of the Bretton Woods calculation and the average of the lowest two of the remaining four calculations (after adjustment).

### Quota Formula Review Group (QFRG), staff views, and Executive Board discussions
- QFRG (1999) recommendations and rationale:
  - Recommended a single formula with two variables: GDP and variability of current receipts and net long-term capital flows, with GDP having the larger weight.
  - Criteria: sound economic basis, reflect changes in world economy, consistency with multiple functions of quotas, simplicity and transparency.
- Staff commentary:
  - Supported simplicity and use of variables reflecting quota functions; favored GDP at market exchange rates and a broader definition of variability.
  - Expressed concern that the QFRG variability measure would not reflect vulnerability from short-term capital shocks.
  - Partial and subsequent quantifications indicated distributions most members would consider unacceptable, leading to wide divergence of views.
- Executive Board seminars and outcomes:
  - October 2001 seminar: consensus that formulas should be simple, transparent, reflect financial functions of quotas and produce broadly acceptable results; support for GDP and for inclusion of an openness variable and a measure of variability.
  - June 2002: Directors reached understandings endorsing a simpler, more transparent approach and limited consideration to three or four updated variables (GDP, a measure of openness, variability, and possibly international reserves).
  - July 2003: Executive Board reaffirmed broad conclusions on quota-related topics.

### Data selection, required variables, and construction of quota database (Appendix IV)
- Required data for 184 member countries (converted into SDRs):
  - GDP for three years (2001–03).
  - Current receipts for 13 years (1991–2003).
  - Current payments for five years (1999–2003).
  - Net capital flows for 13 years (1991–2003).
  - Official reserves (average over the 12 months of 2003).
- Definitions and inclusions/exclusions:
  - Current receipts defined as the credit component of transactions between residents and nonresidents other than financial transactions and reserves.
  - Errors and omissions excluded from variability measures.
  - Fund credit and loans, and exceptional financing excluded from variability measure.
  - Transactions in reserve assets excluded from net capital flows where data available; changes in reserve liabilities not excluded due to lack of data.
- Data sources and processing:
  - Main source: Fund’s Economic Data Facility (EDF), referred to as the IFS database.
  - Gaps largely supplemented using World Economic Outlook (WEO) database.
  - For members lacking IFS/WEO, data taken from Article IV reports, country desk data, and the Eleventh Review database.
  - Valuation: series in U.S. dollars converted to SDRs using period-average exchange rates.
- Data availability and gap-filling procedures (selected exact figures and counts preserved):
  - IFS used for current receipts credits for 178 members, with WEO growth rates applied to 83 of these where there were data gaps; WEO data substituted completely for 13 members; no IFS or WEO data were available for 6 members.
  - For current receipts debits, IFS source for 178 members, WEO growth rates applied to 83; WEO substituted completely for 7 members; no IFS or WEO for 6 members.
  - For income and current transfers credits, IFS source for 177 members, change from WEO applied to 77; net credit figures from WEO substituted for 6 members; no IFS or WEO for 7 members.
  - For income and current transfers debits, IFS source for 177 members, net change from WEO applied to 81; net debit figures from WEO substituted for 6 members; no IFS or WEO for 7 members.
  - “Capital account” credits: IFS source for 171 members, WEO change applied to 10. “Capital account” debits: IFS source for 171 members, WEO change applied to 72.
  - Net capital flows: IFS source for 171 members, with WEO data substituted for 72 members; no IFS or WEO data for 13 members.
  - Official reserves: derived from IFS with monetary gold valued at SDR 35 per fine troy ounce; annual average for 2003 computed from 12 months of 2003.
  - GDP: IFS and WEO provided GDP for 181 members; IFS source for 132 members; WEO used for 17 members; WEO growth rates applied to latest IFS data for 32 members.
- Special cases and specific country data-handling (selected exact examples):
  - Somalia: data assumed unchanged from the Eleventh Review.
  - Bosnia-Herzegovina: current receipts estimated based on the Eleventh Review and Country Desk Data.
  - Eritrea: Eleventh Review and WEO used.
  - Liberia: estimated based on country desk data.
  - Iraq, Marshall Islands, Micronesia, Palau: recent Article IV staff reports and country desk data used.
  - San Marino: estimated on basis of IFS and recent Article IV staff reports.
  - Serbia-Montenegro: WEO, country desk data and recent Article IV reports used.
  - Turkmenistan and Uzbekistan: WEO and recent Article IV reports used.
  - Afghanistan and reserves for Democratic Republic of Congo and Kiribati: computed using recent Article IV staff reports.
  - Timor-Leste: estimated from recent Article IV staff report.
  - Belgium pre-2002 balance of payments estimated as difference between Belgium–Luxembourg Economic Union and Luxembourg.
  - China balance of payments adjusted for mainland–Hong Kong SAR trade using Direction of Trade database.

### Data tables and statistical appendices (selected exact figures)
- Table A2: Data used for quantification of quota formulas (selected top entries preserved exactly):
  - United States — GDP Average 2001-2003: 37,149 (SDR millions); Current Receipts 1999-2003: 7,973,794; Current Receipts Variability 1991-2003: 59,456; Current Receipts plus Net Capital Flows Average 1991-2003: 7,866,610; Reserves 12-month Average 2003: 65,530; Actual Quota 2003: 44,833.
  - Japan — GDP Average 2001-2003: 13,313; Current Receipts 1999-2003: 3,136,117; Current Receipts Variability 1991-2003: 390,893; Current Receipts plus Net Capital Flows Average 1991-2003: 3,069,725; Reserves 12-month Average 2003: 17,535; Actual Quota 2003: 23,513.
  - Germany — GDP Average 2001-2003: 13,008; Current Receipts 1999-2003: 1,569,822; Current Receipts Variability 1991-2003: 40,524; Current Receipts plus Net Capital Flows Average 1991-2003: 1,717,913; Reserves 12-month Average 2003: 23,392; Actual Quota 2003: 16,440.
  - (Table A2 continues with full country-level data across 184 members; the PDF contains the complete matrix.)
- Table A3: Quotas and updated variables by member (selected exact figures):
  - United States — Quotas 2003 (In millions of SDRs): 37,149.3; Actual Quota Shares (In percent): GDP 17.382; Existing Five Formulas 31.794; Openness 1999-2003 16.229; Variability 1991-2003 20.108; Reserves 2003 3.284.
  - Japan — Quotas 2003: 13,312.8; Actual Quota Shares: GDP 6.229; Existing Five Formulas 12.505; Openness 1999-2003 5.687; Variability 1991-2003 5.381; Reserves 2003 21.593.
  - China — Quotas 2003: 6,369.2; Actual Quota Shares: GDP 2.980; Existing Five Formulas 4.460; Openness 1999-2003 5.340; Variability 1991-2003 4.124; Reserves 2003 14.175.
  - (Table A3 provides the full country-by-country quota and variable shares.)
- Table A4: Basic Votes and Voting Shares (selected exact figures):
  - Total (Current Quota): 213,719 (In millions of SDRs); Total Votes (Current Quota-based): 2,137,192; Basic Votes (Current Basic Votes 250 each) Total Votes: 2,183,192; Voting share: 100.0 (Current configuration).
  - Advanced economies (Current Quota): 131,634 (In millions of SDRs); Total Votes: 1,316,344; Voting share (Current): 60.6 (percent).
  - Developing countries (Current Quota): 65,969; Total Votes: 659,692; Voting share (Current): 31.7 (percent).
  - Major advanced economies (Current Quota): 98,372; Total Votes: 983,720; Voting share (Current): 45.1 (percent).
  - United States (Current Quota): 37,149; Total Votes: 371,493; Voting share (Current): 17.0 (percent).
  - (Table A4 includes scenarios with Basic Votes at 5 percent and 10 percent of Total Votes and corresponding voting shares and totals.)

*Source: IMF Finance and Statistics Departments (Section 3 (b) (ii) and (c), initial version PDF)._

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2005/_090205a.pdf_