Quotas and Voice--Further Considerations
September 2, 2005

The Chairman's Concluding Remarks
Quotas and Voice--Further Considerations
Executive Board Seminar
September 20, 2005

The seminar today has provided a timely opportunity for a fresh discussion of the very important issues of quotas and voice. In my report to the IMFC on the Fund's Medium-Term Strategy, I have stressed that the Fund's effectiveness and legitimacy as a universal institution rest on fair weight and voice for all of its members, and that all stand to benefit from adjustments that enhance the Fund's legitimacy. From your comments today, I believe this view is broadly shared by all of us, and this provides us with a sound basis for continuing with our work. A crucial point, which many of you have emphasized, is that it will be essential to move forward in this endeavor based on broad support and consensus across the Fund's membership. That is why this discussion has been useful in showing us both the opportunities and the difficulties that lie ahead.

I heard a variety of views today on the need for a quota increase. While a number of you have reiterated your view that an increase is not warranted, others have noted that, given the uncertainties in the global economy, it is premature to preclude a possible quota increase under the Thirteenth General Review of Quotas. We will continue to monitor the Fund's liquidity position and the potential demand for Fund resources closely, and in any case will need to address this issue in the context of the Thirteenth Review.


As the staff paper makes clear, the Fund's Articles of Agreement provide for substantial flexibility in the adjustment of quotas: such adjustments can take place at any time, and the Board has considerable flexibility in determining the basis for and composition of such adjustments. A number of you have pointed out that general quota increases have played an important role in the past in facilitating a redistribution of quotas, and some have expressed skepticism as to whether any redistribution can be achieved outside the context of a general increase. I suggest we keep all options on the table. I believe that it would be accurate to say that most of you would support--as a pragmatic way forward--continued exploration of ways to achieve a redistribution of quotas in the absence of a general increase. This will not be an easy task, and strong political will and leadership will be required for progress to be made.

In today's discussion, three broad options outlined in the paper for adjustments in quotas and voting power in the absence of a general increase were considered. These are: ad hoc increases for selected countries whose quotas are most out of line; voluntary adjustments among country groups or individual members; and an increase in basic votes. Many Directors saw the need for ad hoc quota increases for selected countries, i.e., those whose quotas are most out of line. Such increases have been agreed in the past and could be accommodated without requiring a reduction in other members' actual quotas, although quota shares would decline for all other members. However, it would be fair to say that a consensus for ad hoc quota increases does not currently exist.

Our discussion also covered possible voluntary adjustments among country groups or individual members as a means of reallocating existing quotas to members that are "underrepresented." Under such a proposal, some members, or groups of members, would agree to reduce their quotas to permit increases in the quotas of other, "underrepresented" members. Since each member has an effective veto over a reduction in its quota, progress on this proposal will be challenging. As we explore this proposal, the implications for the Fund's liquidity will need to be taken into account.

Directors underscored the desirability of ensuring adequate representation of developing countries in the Fund's decision making. Most Directors considered that an increase in basic votes would be the most effective means of ensuring appropriate representation for the smallest members, although they recognized the difficulties likely to be involved in achieving the required amendment of the Articles of Agreement. A few saw scope for ad hoc quota increases for small countries if a consensus on basic votes is not achievable. At the same time, a number of Directors considered that an increase in basic votes would not of itself be sufficient to address broader concerns about relative voting power across the membership as a whole, and should be combined with increases in the quota shares of developing countries. In addition, concerns were expressed that proposals regarding basic votes or ad hoc increases would have to be consistent with the overarching principle that voting power in the Fund remains linked to countries' relative economic and financial weight.

Today's discussion has revisited some of the issues surrounding quota formulas. Many Directors reiterated their support for a quota formula that is simpler and more transparent as an important objective. Most of you reconfirmed that such a formula should be based on an updating of the traditional economic and financial variables, and comprise at most four variables, including GDP as the most important indicator of countries' economic size, along with measures of openness, variability of current receipts and net capital flows, and reserves. Although Directors' views converge on the objectives of simplicity and transparency in quota formulas, there remains a range of views on the details and the weights to be assigned to the variables. Another aspect is the link between work on a new quota formula and the renewed discussion on quotas and voice. A number of Directors view agreement on a new quota formula as an integral part of any adjustment in actual quotas, since quota formulas measure members' relative economic positions and therefore represent a key metric for assessing issues relating to the distribution of quotas. However, many other Directors noted the extensive discussions on this topic in the past and the likely difficulty in reaching a timely consensus on a new quota formula, and saw no need to link an adjustment of quotas to agreement on a revised formula.

In brief, we have put on the table various options for addressing concerns about the distribution of quotas and voice, even in the absence of a general increase. We will carefully reflect on today's discussion, which has yielded a range of valuable suggestions, including on the merits of combining the various options in a package that would gain broad support. We will come back to you in the context of our work program on the basis of which the institution can press ahead with these issues, including in the period to the 2006 Annual Meetings.