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IMF Survey: IMF Board Approves Far-Reaching Governance Reforms
November 5, 2010
- Significant shift of voting power to dynamic emerging markets, developing countries
- Reforms will lead to all-elected, more representative Executive Board
- IMF quotas to double to about $755 billion
The IMF’s Executive Board has approved far-reaching reforms of the way the IMF is run, a week before the Leaders of the Group of Twenty (G-20) industrialized and emerging market economies are due to meet in Seoul, Korea, to discuss how best to strengthen the global recovery.
Core of reforms will be doubling of IMF quotas that will produce shift of 6 percent of quota shares to dynamic emerging market, developing countries (IMF photo)
IMF GOVERNANCE REFORM
“Taken together, it’s a big shift in quotas and accordingly in voting power. It’s a very important increase in the voice and representation of the emerging market and developing countries ... it is a historical reform of the IMF,” Strauss-Kahn told journalists at a press conference immediately following the Board’s decision.
“It means we now have the top 10 shareholders that really represent the top 10 countries in the world, namely the United States, Japan, the four main European countries, and the four BRICs. The ranking of the countries is now really the ranking they have in the global economy,” he said.
More voting power to dynamic emerging markets and developing countries
The core of the reforms will be a doubling of IMF quotas that will produce a shift of 6 percent of quota shares to the dynamic emerging market and developing countries.
“One-half of the shift comes from advanced economies, mostly European advanced economies, but the United States also played a part. One third comes from oil producers, countries like Saudi Arabia for instance. So altogether, 80 percent of the shift comes from advanced countries and oil producers,” Strauss-Kahn said. “Only 20 percent comes from other emerging countries,” he added.
“The bottom line is that 110 countries out of 187 will see their quota share increased or maintained. When you look at who those 110 are, you have 102 which are emerging or developing countries. That gives a clear picture of what has happened,” he said.
The 10 largest members of the Fund will now consist of the United States, Japan, the four largest European economies (France, Germany, Italy, and the United Kingdom) and Brazil, China, India, and the Russian Federation (the BRICs; see box).
Quota and governance reforms: key facts
• All BRIC countries will be top 10 IMF shareholders
• More than 6 percent shift in quota share to dynamic emerging market and developing countries
• Voice of poorest countries maintained by preserving their voting shares.
So who pays for the shift?
• The bulk of the shift—about 80 per cent—comes from a reduction in the shares of advanced economies and some oil producers
• 110 countries will gain or maintain quota share, of which 102 are emerging market and developing countries.
Once reforms in place, rebalancing to be mirrored in IMF’s Executive Board
• Advanced European economies will hold two fewer seats
• All Executive Directors will be elected.
In addition, the voice of the poorest developing nations within the IMF will be maintained by preserving their voting shares. “We needed to do this while maintaining the quotas of the poorest countries because when you organize something that is more in line with the economic weight of countries, there is always a risk that the small countries, the poor countries, will almost disappear in the process. So we had given ourselves this constraint that the poorest countries should be protected, and they have been,” Strauss-Kahn said.
A more legitimate and democratic Board
Once all the reforms are in place, this rebalancing will be mirrored in the IMF Executive Board. “There will be two fewer seats for advanced European countries. They have agreed to do it, agreed to the metric to do it, and the timetable. When this will be completed, there will be two more emerging countries in the Board which will just reflect the change in quotas,” Strauss-Kahn said. As part of the agreement, all Executive Directors will also be elected.
The Executive Board endorsed a timeline that calls for the quota increase and realignments to take effect by the IMF-World Bank Annual Meetings in October 2012, and Executive Board reforms to be implemented no later than the subsequent Board election, which is scheduled in late 2012.
It was also agreed that the composition of the Board will be reviewed every eight years, starting when the quota reform takes effect. The composition was last changed in 1992, when the Board was expanded from 20 to 24 members to accommodate the influx of new member countries following the fall of the Soviet Union.
Doubling of quotas
Member countries’ quotas, the IMF’s principal source of financial resources, will double under the 14th General Review of Quotas to SDR 476.8 billion (about $755.7 billion at current exchange rates) from SDR 238.4 billion agreed under the 2008 quota and voice reform.
As part of the agreement, the New Arrangements to Borrow (NAB), a backstop arrangement between the IMF and a group of IMF members to provide additional lending resources to the Fund, will be rolled back.
The Board also agreed that a new formula for calculating quotas should be decided by January 2013, and that the next quota review should be completed by January 2014, two years ahead of schedule.
The Board of Governors, the IMF’s highest decision-making body, must ratify the new agreement by an 85 percent majority of votes cast before it comes into effect.