Transcript

Washington, D.C.
Tuesday, April 29, 2008

MS. LOTZE: Thank you very much. Welcome to this conference call on the Board of Governors vote on Quota and Voice. Most of you know me, I'm Conny Lotze of Media Relations. Before I introduce the speakers I would just like to point out again that the speakers should be identified as Senior IMF Officials only for the reason that the Managing Director can be quoted from the press release.

So with these introductions I'll give the floor to our main speaker who will make some brief remarks and then we'll take your questions. Thank you.

SENIOR IMF OFFICIAL: Good morning. As you all know from the press release the IMF's Board of Governor's yesterday adopted by a very large margin, far-reaching reforms of the Funds governance structure. Governors of 180 of the Funds 185 member countries voted with 175 member countries representing 92.9 percent of the voting power voting in favor. We needed 85 percent of the total voting power for approval of the resolution.

I think this shows overwhelming support for the reforms which will realign quota and voting shares of member countries' weight and position in the global economy and also the reforms enhance significantly the voice and participation of emerging markets in low income countries. I doubt that I think the Fund is the first international financial institution to adopt such deep governance reforms.

Just a few words on the specifics. The resolution approved by the Board of Governors involves increases in quota share for 54 member countries, but I think importantly it also foresees this is a first step in a process. It envisages very realignments of quota shares in the future in the concept of general reviews of quotas which take place every five years. So as I say these adjustments in the resolution should be seen just as a first step in the process.

I think also very importantly the resolution includes a tripling of basic votes, which enhances the voting share of small and predominantly low income member countries. And this is the first time since the Fund was established that basic votes have been increased. There are also provisions in the resolution that ensure that the share of basic votes and total voting power will not be eroded in the future. And as a result of the quota increases, only increase in basic votes. The voting power of 135 member countries will increase.

And lastly, the resolution allows the two Executive Directors representing the African constituencies, which have the largest number of members to appoint a second alternative executive Director which is important for their ability to represent adequately their members.

Just in terms of the further steps in the process, the increase in basic votes and the ability to appoint a second alternative Executive Director for the two largest constituencies requires an amendment to the Articles of Agreement. To go into effect that amendment needs to be accepted by three-fifths of the members representing at least 85 percent of the voting power of the Fund and most member countries will require legislative approval for that. The proposed consenting to the increasing quotas by individual member countries and paying into the Fund will also require further actions by many countries, in some cases involving legislators.

I'd also note that the quota increases can't go into effect before the amendment of the Articles is adopted. I'll stop there and will be please to take any questions you may have.

QUESTIONER: Yes, hi. Dave what is, I see of the 175 countries, sorry I mean, how many I see obviously 10 countries did not vote. Correct?

IMF OFFICIAL: No, 175 voted in favor.

QUESTIONER: Oh, okay. Sorry, excuse me.

IMF OFFICIAL: Five did not vote.

QUESTIONER: Are those the ones that have abstained?

IMF OFFICIAL: I can't give you the names, I can't tell you how individual countries voted. I can tell you two countries abstained and three countries voted against and five did not vote and all the rest, the 175 voted in favor. That is as much as I can tell you. But you are obviously free to ask individual countries if you wish how they voted. It's up to them to decide whether to tell you.

QUESTIONER: I just have a follow up. When next will the Fund review this? I mean has there already been sort of an agreement that the next review, I guess that's in what three or five years time, that this is going to be revisited?

IMF OFFICIAL: Yes, I mean the issue of further realignment of quota shares in line with developments in the global economy and to bring quotas more into line with, because with existing positions in the global economy because they haven't gone all of the way there with this first step. It will take place in the context of the next General Review of Quotas which is in about five years. And in the run up to that it's all envisaged that we'll do a little bit more work on some aspects of the quota formula, the definition of some of the variables and one or two other things.

So the next significant step will take place in the context and in the run up to the next General Review of Quotas.

QUESTIONER: Actually following up on the previous question, the review of the quotas is automatic. So does that mean everyone who is underrepresented will expect to get another increase or is there a possibility that could be derailed or wouldn't happen? What I've heard some people say is that basically, you know, Brazil got the biggest increase and was sort of, Brazil and India were sort of bought off and it's highly unlikely that this is going to, that any other countries will see any major increases in the future.

IMF OFFICIAL: The next review has to take place within five years and I think that the language in the resolution on this is pretty strong. It says to ensure that member's quota shares continue to reflect their relative positions in the world economy, the executive Board is requested to recommend further realignments of member's quota shares in the context of future general quota reviews beginning with the 14^th which is the next General Review of Quotas. So there's here a request to the Board to recommend further realignments of quota shares in the context of that review.

Obviously that will again have to be voted on by the Board of Governors, but there's a clear presumption that this process will go forward. That the Board will recommend further realignment in that review. And that the Board of Governors will be required to vote on those further realignments. So I think there is a strong presumption that this process is going to continue.

QUESTIONER: And a follow up, can I ask you the countries that voted against or abstained were they objecting to how much increases some countries received or how little their countries received or what was the objection? Or just they didn't think anyone should get, there should be any change?

IMF OFFICIAL: I neither know nor would be in a position to comment in any case on why countries voted, either didn't vote, voted against or abstained. I think that's something that has to be taken up with individual countries. I'm afraid I'm not in a position to comment.

I actually don't know in some cases and I'm not in the position to comment in any event.

QUESTIONER: Did you say 54 countries will have their quotas increased?

IMF OFFICIAL: Yes, 54 countries will have an increase in their, in both their absolute quotas and their quota shares as a share of the total.

QUESTIONER: Okay. And of those countries how many are large emerging markets? Is there a break down?

IMF OFFICIAL: There is a break down. I don't have it in front of me. Perhaps we can, I think the list of countries was in the press release.

IMF OFFICIAL: That was issued, that's correct. That was issued shortly after the Board meeting. So I think there is a full list of countries.

MS. LOTZE: we will get you the list again, but it is out there.

QUESTIONER: Okay. So that remains the same?

IMF OFFICIAL: Yes. The reform is exactly as approved by the Executive Board on March the 28^th. So the material that was issued following that Board meeting is still completely accurate and valid.

MS. LOTZE: Now you also have these details that you were just talking about, like the 54 countries in the first press release of March 28, we didn't repeat that, but there's a link in this release to that.

QUESTIONER: I wonder does this require U.S. Congressional approval?

IMF OFFICIAL: Yes, it does. It requires U.S. Congressional approval for two reasons. One is, as David has mentioned, there is an Amendment to the Articles of Agreement and the U.S., like most of our members, requires legislative action in order to adopt or amend a treaty, and the Articles of Agreement is an international treaty. But separately, the U.S. will need to go to Congress to both consent and pay for the quota increase that has been offered under this resolution. And the U.S. has gone to Congress in light of that for all previous quotas. So it has to go to the U.S. Congress for two reasons. The Amendment of the Articles, which the main speaker has indicated is for basic votes and for the second alternate, and secondly for the quota increase.

QUESTIONER: I guess nothing can happen until Congress and other legislatures approve this, which could take several months?

IMF OFFICIAL: It could. As the main speaker has indicated, the Amendment has to go into force before any of the quota increases become effective. Okay? And that's part of the deal, part of the package. And the U.S. acceptance of the Amendment is necessary for the Amendment to come into effect because the U.S. essentially has more than 15% of the voting power, and Amendment of the Articles requires at least 85% of the voting power. Are you with me? So if the U.S. Congress does not essentially approve the Amendment, the Amendment cannot go into effect. And if the Amendment cannot go into effect, the quota increases cannot go into effect.

IMF OFFICIAL: Maybe I can just—this goes back to the Resolution that was passed in Singapore in 2006. The reason for that linkage is to prevent the dilution of the voting share of low-income countries that would happen, that might happen, if the quota increases went into effect before the increase in basic votes went into effect. So this is insure that the two happen at the same time, and there isn't any—even for a temporary period—dilution of the voting share of low-income countries as a result of the reform. So that's the reason for the linkage.

QUESTIONER: Thank you. I'd like to follow up on the duration expected for the approval by the various legislatures. Do you have any best estimate of how long this process will take?

IMF OFFICIAL: It's really difficult to say. You know, the period of time in the past, between the adoption of a resolution and the effectiveness of an amendment or an increase in the quotas, has varied. I think it really depends on the sense of urgency within our membership on this issue. I know that the Managing Director and at least discussions of the Executive Board indicate that this is a matter of priority for the Institution. So, at least from the Fund's perspective, we hope that the process is rapid, but ultimately this is a question of domestic priorities for a number of countries.

QUESTIONER: Just another follow up on the legislative process. Is there a deadline by which the legislatures need to approve it? And my second question is, are you suggesting that legislatures from 85% of the membership need to approve this in order to go through?

IMF OFFICIAL: Can I take the first—the second part first? As David has indicated, we said most countries have to take legislative action in order to adopt an Amendment to the Articles of Agreement. That's based on essentially our experience with previous amendments. But whether or not a government needs to go to its legislature is a matter of domestic law and the Fund doesn't have a view on that, whether or not countries do have to go, but our experience is that the Constitutions of at least most of our countries do require that, but the interpretation of those Constitutions is for the country, not for the Fund.

There are no deadlines for the adoption of the Amendment. In other words, essentially it's open for acceptance. There is a deadline in the Resolution for the consent to the quota increases, but that is a deadline that can be extended by the Executive Board by a majority of votes cast, and in the past we've had similar such extendable deadlines, if I can use that term, and there is an expectation that, in deed, those deadlines—the deadline on consent will, in fact, be extended, particularly if in fact such extensions are necessary because of legislative approval. And, indeed, the language in the Resolution specifically points out that, if I can read it, that the Executive Direct Board may extend this period as it may determine, taking into account in particular the needs of members to obtain domestic legislative approval. And the deadline is October 31, 2008.

QUESTIONER: Okay, and that is just for the consent of the quota increases?

IMF OFFICIAL: Right.

QUESTIOENR: And what's the other issue that doesn't have a deadline?

IMF OFFICIAL: It's the Amendment for the Articles of Agreement. Because we noted the Amendment to the Articles has to go into effect before the quota increases can go into effect, so the two are linked in that sense.

QUESTIONER: In a lot of countries are not happy that this has gone through, I mean with a large margin as you've pointed out, but a lot of countries, you know, are still not—I mean they voted because they thought that this—they voted for it because they thought this was the best that they could get for now. I mean, is that your feeling as well? I mean, do you think that this is the best that the Fund could put on the table for these countries?

IMF OFFICIAL: Well, I think it's a good agreement. I also think it's probably is about as good an agreement that we could have got as well that's point. It involves significant increases in quota share for a number of major dynamic emerging market countries. It's all based on a new formula, which in my view is a vast improvement over the current complex long transparent system of five formulas. And this new formula gives very large increases in calculated quotas as well to a number of emerging markets, including emerging market countries, in fact, that don't actually benefit from quota increases in this round. If you look at what happens to countries like Argentina and Egypt and so on, you'll see they have very large increases in calculated quota share as a result of the new formula.

I think the increase in basic votes is a major change and something that benefits low-income countries. So overall, I think that the package is a very good one. I think it goes beyond, in fact, what was promised in the Singapore Resolution. Obviously, it cannot meet the needs of all member countries. You've got 185 member countries in different circumstances with different priorities and desires in all this, and any agreement has to be a compromise that's going to leave—probably going to leave everybody not fully satisfied. That's the nature of the beast, but I think this is a very good agreement, and I think that's the reason why a vast majority of countries in the end voted for it because they see it as basically a good agreement.

And the last thing I should mention—I'll go back to and reemphasize—is that it is a dynamic living thing. It's not a one-shot deal. It's something that involves a sequence of increases and a strong commitment to further realignments in the future. And I think it's that, too, as much as anything, that convinced a number of countries that don't benefit in this round still to vote for the agreement because it holds out the promise of ever increases in quota share in the future if they continue to perform strongly in the global economy. So, bottom line is that I think it's a good deal and I think it probably is just about the best deal that we could've got at this point.

QUESTIONER: The issue of adjusting the chairs from the board now, is that a separate issue or is that included in the resolution of sort of things to come?

IMF OFFICIAL: It's a separate issue that is likely to come up at some point in the future, but we'll proceed on a somewhat separate track. It's something that, in fact, comes up automatically every two years because the Board of Governors has to vote every two years with 85% majority to keep the Board at its present size of 24 chairs. If that majority isn't obtained, then the Board automatically reverts to 20 chairs, so it's an issue in any case that comes up automatically every two years, and hence will proceed on a somewhat separate track.

QUESTIONER: And I believe their meeting is coming up this year? That meeting is due this year?

IMF OFFICIAL: Yes. I think this fall the Board of Governors has to consider this issue, and then again in 2010 and 2012 and so on.

IMF OFFICIAL: If I could just add. In terms of the reform on the creation of the Second Alternate Executive Director for—Executive Directors that represent a large number of constituencies, this element of reform does not change the voting power of the countries that form part of large constituencies. However, what it does—as you know, the Executive Board is the decision-making body in the Fund that is responsible for all the day-to-day operations. And essentially it provides them with a significant increased level of resources and representation at the Board, and therefore will basically enhance the impact of their views in the Institution. And that's one of the reasons why they pushed very strongly for this, and why we think it's an important component of reform.

MS. LOTZE: Thank you. Unless there's a really urgent question, we would like to wrap it up here. Is there a question in line or in the queue?

QUESTIONER: Just wanted to follow up: what is your feeling on the chances that Europe will agree to consolidate, or agree to lower quotas and consolidate maybe even into one voting seat on a Board?

IMF OFFICIAL: I'm not sure I'm in a position to comment on that. I think it's something you should raise with Europe. Obviously, it's an issue that does come up, and is raised by some Europeans from time to time, so it is an issue that's out there, but I'm not in a position to estimate the likelihood that that will happen. So that's something I think you need to take up with some key European players.

MS. LOTZE: All right, on that note I think we're going to wrap it up. Thank you very much for participating in this call.