The adequacy of the International Monetary Fund’s (IMF) membership quotas is a fundamental part of the international financial architecture discussed in the 14 paragraph of the final statement of the Riyadh G20 Summit held on November 21 and 22, 2020. Leaders reaffirmed their commitment to guaranteeing a strong international financial safety net that is supported sufficiently and ensuring that the IMF remains at the forefront of this network as a robust, quota-based and adequately resourced institution. They also committed to reviewing the adequacy of membership quotas and continuing the IMF governance reform process under the 16th general review of quotas, including a new quota formula by December 15, 2023.
The leaders called on the Fund to continue exploring additional tools for serving the members’ needs as the crisis develops, solidifying long-term financial resilience, supporting growth, promoting sustainable capital flows and developing domestic capital markets. The Fund’s members agreed to keep its lending capacity at one trillion dollars, postponing any changes to its contribution structure to December 15, 2023.
The leaders’ move is an acknowledgment that the IMF’s quota review will not result in changes that grant major developing economies, such as China, Brazil, Saudi Arabia and others, more influence. The US should have ceded part of its share so that the distribution would become more closely aligned with countries’ economic weight, for this wouldn’t have undermined its privileged position within the Fund. Now, however, any new distribution of shares would threaten that position. Countries are deeply dismayed by the Fund’s failure to regulate its contribution structure in such a way that acknowledges the growing stature of China and other rapidly growing economies.
Some countries’ decision to refuse a quota review stems from the fact that each country’s voting power is determined by its share of the Fund’s capital, and this, in turn, is determined by a formula that factors in gross domestic product, the degree of the country’s economic openness, the extent of its economy’s structural variability, and the amount of monetary reserves it holds. Quotas and voting power become more important when we bear in mind that for some crucial decisions, such as whether to lend member states or even review quotas, an 85% majority of the total votes is required. Accordingly, since the US’s share is above 17 %, it can effectively veto any decision.
It would perhaps be fairer for some countries to give up part of their quota in order for the distribution to become more aligned with countries’ economic weight, for this would not have undercut their privileged position, while any new distribution of shares could cost them that position. The United States’ share had almost halved (from 33% when the Fund was established in 1944 to around 17%), which corresponds to the decrease of its share of the global economy, around 50% at the end of World War II to about 24.4% in 2020. When the changes to shares’ distribution had threatened its position in the past, the Fund’s decision-making framework was modified - for example, the majority required for critical decisions was raised from 70% to 85% of the total votes, preserving the US monopoly over the veto within the institution.
The last time decisions on quotas were taken was during the G20 finance ministers’ meeting in South Korea, stipulating that IMF member countries’ shares be doubled, from about 476.8 billion special drawing rights (SDR) units (about $ 755.7 billion) instead 238.4 billion SDR units worth of share; as well as an increase to the relative shares, and thus in the voting power, of emerging economies, at the forefront of which is China. This decision was taken because of the weight of the global financial crisis, at a time when the global economy needed massive sums to overcome the crisis. As a result of that decision, the major emerging countries, like China, India and Brazil, became among the ten countries with the most IMF shares. China became third to America and Japan.
The summit’s statement came as a result of the postponement of the quota review to 2023, which deviates from the typical practice of reviewing these quotas every five years. That is, a revision of the 15th quota review of 2015 should have been finalized, but the IMF postponed working on this review until after the stipulations of the 14th review are implemented.
The postponement of governance and quota reform was deeply disappointing to the international community because of the urgency of the need to resolve the issue of the Fund’s quotas in a way that takes into account the stature of the economies of the large countries such as China, Brazil and Saudi Arabia, which would grant them increased voting power and reflect the changes in the global economy. Quota reform would perhaps be a significant step forward that must go ahead in order for the provisions of the world leaders’ resolution to be implemented. A financial push is needed, to which all IMF members should contribute in line with their economic development, especially since the Fund’s portfolio has doubled to a trillion dollars, making it much more financially powerful.
To arrive at a more just, equitable, balanced and stable world, accounting for the size of countries’ economies is necessary. The size of the US economy is 19.39 trillion dollars, 24.4% of the global economy, and China comes in second place, with a 12.24 trillion-dollar economy, 15.4% of the global economy. Then the other countries follow. There is no escape from incorporating the previously mentioned economic criterion if quotas are to be distributed in a manner that furthers justice, equity and the equalization economic opportunities around the world.
The IMF’s Board of Governors is called on to study alternatives to safeguard the Fund’s legitimacy and credibility and to look into alternatives for approving reforms to the quota system that would lead to sustainable economic growth in light of the coronavirus pandemic, which is the real threat to the global economy, and leaders’ concern for a more just distribution of quota in light of the commitment to guarantee a sufficiently buttressed strong financial safety net support and the IMF’s survival.
