The Imf Quota System - the Shift of Financial Power and the Role of Brics

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reforming
the IMF quota system:
the shift of financial power and
the role of BRICS

TABLE OF CONTENTS

1. Abstract…………………………………………….................……..3 2. The International Monetary Fund…………………………………...3 3. The quotas system…..……………………………………………....3 4. Reforming the quota system: the role of BRICS……………………4 5. Conclusions……………………………………………...………….6 6. Bibliography…………………………………………...……………7 7. Webography…………………………………………………………7

Abstract

In this paper we briefly introduce the IMF organization, its governance based on the quota system and the reform of Gyeongju, Korea 2010. Then, we focus on the shift of global economic balances and on BRICS role at the G20 Summit of Los Cabos. We underline their request for implementation of the 2010 reform on representation and on voting shares for emerging countries. Finally we present some conclusions.

The International Monetary Fund

The International Monetary Fund (IMF) is an international organization of 188 countries, created on July 22, 1944 at the Bretton Woods Conference to rebuild national economies at the end of the Second World War. Its main tasks were to oversee the international monetary system in ensuring the exchange rate stability and to encourage members to eliminate exchange restrictions that hinder trade. More recently, since the spring of 2010, the IMF has largely focused its intervention on Europe, an idea that would have been unthinkable before the outbreak of the sovereign debt crisis that has threatened the euro. In April 2012, the IMF announced that it had raised at least 430 billion of dollars in extra lending capacity (bringing the total resources of the Fund at 750 billion dollars) to be used if the euro zone crisis worsens or global financial conditions deteriorate.

Governance at the IMF is largely determined by a quota system of allocating voting shares to member countries. The “Fund” gets its funding from two mechanisms, the General Agreements to Borrow (wherein contributions are directly linked to voting shares) and the New Agreements to Borrow (bilateral contributions that supplement existing funds). All major decision should be taken with a special majority of 85 per cent of voting shares. In the current system, the US still retain 17,4 per cent of the total voting shares, which gives to them a de facto veto. The EU 27 nations hold about 29 per cent of voting shares.

The Quotas System

The IMF uses the quotas system to determine the assessment of the inside relative position of its members. When a country joins the IMF, it is assigned an initial quota in the same range as the quotas of existing members that are broadly comparable in economic size and characteristics. The vote of each member is equal to a quota, and it is based on the state’s weight in the global economy (and its financial contribution to and access to borrowing from the Fund) and on a basic vote, which is equal for every country. This was the compromise between two factions at the Bretton Woods Conference, respectively preferring a one-member-one-vote system and voting based purely on the size of each country’s economy.

While basic vote significantly increase the votes of a few very small economies compared with a purely quota-based voting system, the failure to increase their relative size since 1944, while Fund quotas have increased by a factor of 37 and membership only by a factor of 4, has deeply reduced their significance.[1]

Basic votes currently account for 5,502 per cent of the votes in the IMF, compared with 11,3 per cent originally (IMF, 2003, table 4). Thus, the decline of the basic votes, historically, has determined the shifting of balance of power in favour of large-quota countries. As a consequence, small countries have lost their weight in the decision-making process. For this reason, the developed...
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