After five long years of waiting, the 2010 reforms of the International Monetary Fund (IMF), which aim to modernise and democratise the IMF’s quota and governance system by giving greater voice to emerging economies, have finally come into effect on January 27, 2016.
The voting rights, access to financing and subscriptions of the 188 country members of the IMF, one of the guardians of the international monetary system, are largely based on their quotas which are in term based on their wealth. Therefore, while a small IMF member country like Barbados has only 1,442 votes (or 0.06% of total voting power), the largest IMF member, the United States of America, has 421,991 votes (or 16.11 of total voting power).
The IMF’s Board of Governors, its highest decision-making body, periodically conducts a general review of members’ quotas. However, since the IMF’s creation in 1945 as part of the Brettons Woods system, its quota and governance system have been stuck in time; the alignment of quotas and governance structure were reflective of the historic economic might of the US, advanced European economies and Japan, and does not take into account emerging economies’ growing share of the global economy in the last two decades. Take for example the fact that the United Kingdom had more voting rights than China!
In recognition of their under-representation in the quota allocations, emerging economies have been pushing for years for reform of the IMF’s governance and quota system to take into account their importance in the shifting global economy landscape. Following the 14th General Quota Review in 2010, the IMF’s membership agreed to a sweeping and historic reform package aimed at giving a greater voice and say to emerging economies. A major hurdle to implementation was the delay in US ratification of the reforms.
Last year the G20 in its communique echoed India’s disappointment with the delay in the implementation of the reforms. Additionally, in the IMF’s Executive Board’s report to the Board of Governors adopted on January 29, 2016, the Board noted that it had been unable to complete its work on the scheduled Fifteenth Review by the deadline of December 15, 2015 due to the delay in the implementation of the 2010 reforms. Frustration by the BRICs with the delays and their desire for closer cooperation amongst themselves led them to create an alternative multilateral development bank, the New Development Bank, in 2014 with its headquarters in Shanghai
Finally, at long last the 2010 reforms are in effect. Building on reforms undertaken in 2008 and entered into effect in 2011, the major highlights from the 2010 reform package are the shift of 6 percent of quota shares from developed to dynamic emerging market and developing countries (leading to increased voting rights for emerging economies), a re-alignment of the quota shares which will result in China becoming the third largest IMF member and Brazil, Russia and India being included among the top 10 members.
A landmark change as well is the reform of the IMF’s 24-member Executive Board to make it an entirely elected body. Previously, a portion of the directors was elected and five were appointed by the members with the five largest quotas.
The reforms also double members’ quotas which will increase the IMF’s funding, but preserves the quota and voting shares of the poorest members.
Outside of these reforms but still of interest, in December 2015 the renminbi became the fifth currency to be included in the IMF’s Special Drawing rights basket. The four other currencies are the U.S. dollar, the Euro, the Japanese yen, and the British pound.
The 2010 reforms are a praiseworthy start in a thrust towards a modernised, and what we would hope will one day be, a more democratic IMF. It is hoped that the reform work which is expected to continue under the Fifteenth Review will build on these reforms and will not face a similarly long delay in implementation once agreed.
The full press release from the IMF on the 2010 reforms may be accessed here.
Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.