News Brief No. 00/90

News Brief: IMF Issues External Report on the Quota Formulas

September 19, 2000

The International Monetary Fund (IMF) today released a report by an outside panel of experts, which reviewed the adequacy of the formulas used to calculate members’ quotas and made recommendations for reforms. A related staff commentary on the report was also published on the IMF’s website (http://www.imf.org).

First Deputy Managing Director Stanley Fischer made the following statement on the release of the report and staff commentary: “The Quota Formula Review Group has performed a valuable service to the IMF, which is deeply appreciated. The report of the experts group informs us about the history and operation of the quota formulas, suggests guiding principles for future reforms, and presents concrete recommendations to simplify the formulas and make them more up-to-date.

“Executive Directors have had a preliminary discussion of the recommendations of the report and the issues raised in the staff commentary. This discussion revealed a wide range of views on the structure, content, and role of the quota formulas. Directors agreed on the need to carry forward the work of the external panel with a view to developing quota formulas that more fully reflect members’ roles in the world economy. Following the Annual Meetings in September, management will propose a program of work on the quota formulas that builds on the report of the external panel, the views expressed by Executive Directors at their August 31, 2000 seminar, and the staff commentary,” Mr. Fischer said.

The Quota Formula Review Group¹ was formed in 1999 following a request by the IMF Interim Committee (now the International Monetary and Financial Committee) that the Executive Board undertake a review of the formulas used to calculate quotas promptly after the completion of the Eleventh General Review of Quotas, which became effective in January 1999.

The mandate for the expert Group provided for a review of the quota formulas to ascertain “their adequacy to help determine calculated quotas...in a manner that reasonably reflects members’ relative position in the world economy as well as their relative need for, and contributions to, the IMF’s financial resources, taking into account changes in the functioning of the world economy and the international financial system and in light of the increasing globalization of markets.”

The current formulas consist of five equations containing variables designed to reflect a member’s relative position in the world economy, their capacity to provide resources to the IMF, and their potential need for IMF financing. The current variables comprise GDP, external reserves, current account receipts, and the ratio of current receipts to GDP. The quotas calculated on the basis of the formulas have been used primarily to adjust quota shares to reflect changes in the world economy in connection with a general increase in quotas and to assist in the determination of initial quotas of new members.

1 The eight-member panel of independent experts consisted of: Richard Cooper (Professor, Harvard University), as Chairman; Joseph Abbey (Executive Director, Center for Economic Analysis, Accra, Ghana); Montek Ahluwalia (Member, Planning Commission, New Delhi, India); Mohammed Al-Jasser (Vice Governor, Saudi Arabian Monetary Agency); Horst Siebert (President, Kiel Institute of World Economics, Germany); Gyorgy Suranyi (President, National Bank of Hungary); Makoto Utsumi (Professor, Keio University, Japan); and Roberto Zahler (former President, Central Bank of Chile).