IMF Board Says GDP Should Remain Key Variable in Quota Formula
The Executive Board of the International Monetary Fund agreed gross domestic product should remain the most important variable in calculating quota shares, which determine a nation’s strength within the lender.
“Considerable support” was given to increasing the weight relative to GDP, while others preferred to keep the current allocation or maintain it comparative to a nation’s openness, it said in a report submitted to the lender’s board of governors yesterday. The quotas determine how much member countries may borrow and their voting power.
The IMF failed to agree at its annual meeting in Tokyo in October on changes to voting that would give emerging nations greater clout at the institution. Countries such as China and South Korea want the voting formula to better reflect the size of their economies and contributions to the fund’s resources.
“GDP is generally seen as the most comprehensive measure of economic size,” the Executive Board said. “It was agreed that openness should continue to play an important role in the formula, and concerns regarding this variable need to be thoroughly examined and addressed. Openness seeks to capture members’ integration into the world economy.”
Members agreed in 2010 to grant more voting rights to developing economies, setting up China to become third-strongest member, from sixth place currently. Countries such as South Korea and Turkey would also gain power under the deal, while nations such as Belgium and Germany lose clout. The U.S. voting share, while decreasing, will remain the largest. The agreement is still pending approval by the U.S. Congress and others.
The aggregate calculated quota share of emerging markets and developing countries increased by 7.7 percentage points in the five-year period since 2005, the data used for its reform in 2008, the report said.
“Some saw this shift as providing evidence that the current formula adequately captures dynamic developments in the world economy and is not in need of radical reform,” according to the report. “Others considered that the formula remains seriously flawed, producing results that do not adequately reflect members’ relative positions in the global economy, including the increased importance of emerging market and developing countries.”
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