IMF Quota and Governance Reforms

IMF Quota and Governance Reforms

March 26, 2014
IMF Quota and Governance Reforms
Overview
budget request. No IMF authorizations or appropriations
were provided in FY2014 and the Administration has
What Is the Issue? The International Monetary Fund
resubmitted its request to ratify the reform package in its
(IMF, the Fund) is the multilateral organization focused on
FY2015 budget request.
the international monetary system. In December 2010, the
United States and the other 187 IMF member countries
The IMF and March 2014 Ukraine Legislation
agreed to a reform package that addresses two major
concerns about the institution: (1) that the representation of
Since U.S. support to Ukraine would be contingent on Ukraine
emerging and developing economies at the IMF does not
agreeing to an IMF loan and economic reform program, the
Administration urged Congress to include the IMF reforms as
reflect their contribution to the global economy; and (2) that
part of a broader package of Ukraine-related legislation.
the size of the IMF’s financial resources has not kept pace
Countries are allowed to borrow 200% of their quota annual y
with increased economic activity in the global economy.
and 600% cumulatively, and the quota reforms—which increase
The reform package would double the IMF’s general
Ukraine’s quota from $2.1 billion to $3.1 billion—would increase
resources and update the governance structure to increase
the amount of financing available to Ukraine.
the IMF member contributions (known as quota) and voting
The Senate Ukraine assistance bill (S. 2124), as introduced and
power of developing and emerging market economies, and
passed by the Senate Foreign Relations Committee, included IMF
reduce the total voting power of European countries and
reform language but was removed by Senate leadership to ease
reduce Europe’s representation on the IMF’s Executive
passage in the House, where there was greater opposition.
Board, its main governing body.
Critics argued that the IMF has sufficient available capital to fund
any potential loan program and that there are “exceptional
access” for countries to borrow from the IMF amounts in excess
“These reforms wil lead to a major overhaul of the
of their normal access limits. Rather than attaching the IMF
Fund’s voice and governance, strengthening the Fund’s
language to a Ukraine-related measure, they argued, it would be
legitimacy and effectiveness.” IMF Press Release No.
more prudent to address U.S. funding to the IMF as part of the
10/477, December 16, 2010
regular appropriations process. Neither the House ( H.R. 4152
and H.R. 4278) nor Senate (S. 2124) Ukraine measures contains
any IMF-related language.
What Is the State of Play? The quota and governance
reforms are interlinked, and cannot be implemented
separately. A double majority of the IMF membership
The IMF and the Global Economy
(voting power and number of total members) is required to
adopt the reforms. For the quota increase, IMF members
Total IMF member contributions are approximately $367
representing at least 70% of IMF contributions must
billion. In addition to its quota resources, the IMF
consent to the increase. The governance reforms must be
maintains standing multilateral borrowing arrangements to
agreed by three-fifths of the IMF’s 188 members (113
temporarily supplement available quota resources and
members) having 85% of the IMF’s total voting power. In
borrowing. The main borrowing arrangement, the New
many cases (including the United States) this involves
Arrangements to Borrow (NAB), is a set of credit
parliamentary approval. Since the United States has voting
arrangements between the IMF and 38 member countries
power of 16.75%, the reforms cannot become effective
that can provide about $571 billion of supplementary
without ratification by the United States.
resources to the IMF. Since quota increases are difficult to
achieve, members have found separate borrowing
Administration Policy. Successive Administrations have
arrangements to be an attractive vehicle, such as during the
supported IMF governance reform efforts. A modest reform
financial crisis in 2009, when IMF Members increased the
agreement was negotiated between 2006 and 2008 under
NAB by an additional $500 billion.
President Bush and ratified by the United States in 2009
under the Obama Administration. During negotiations for
IMF rules call for a review of quotas every five years to
the current reform package, U.S. officials had a major role
ensure that total IMF resources are adequate and that
in brokering compromises between overrepresented
countries’ quotas reflect their relative share in the global
European countries and underrepresented emerging
economy. Despite major growth and change in relative
economies and crafting the current reform package. The
contributions to the global economy, there has not been a
inclusion of doubling IMF quotas, however, has made
major quota increase since 1998. Faster economic growth in
passage of the reform package more difficult. The
emerging economies than in the rest of the world doubled
Administration sought for several years to have Congress
the share of emerging market countries’ contribution to
introduce funding language outside of the regular budget
global GDP from 20% in 1996 to 39% in 2013. Emerging
cycle and did not include a formal request until the FY2014
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IMF Quota and Governance Reforms
market countries accounted to 76% of global growth in
commitment to the IMF would remain at about $170
2013 (Figure 1).
billion. The U.S. current quota commitment (about $65
billion) would approximately double to $128 billion. The
Figure 1. Global Growth
U.S. commitment to the NAB (about $105 billion) would
be reduced to $42 billion.
Governance Reforms. Day-to-day authority over IMF
general operations is handled by a 24-member resident
Board of Executive Directors. There are presently two
categories of Executive Directors, appointed and elected.
Under current rules, the five countries with the largest
quotas appoint their own Executive Director.
The 2010 proposed reforms eliminate appointed Executive
Directors and require that all Executive Directors be
elected. Since Germany, France, and the United Kingdom
will likely continue to be among the five largest
contributors to the IMF, the reforms allow for potential
future consolidation of European representation on the
Executive Board. For the United States, this reform has no
practical impact on its ability to have its representative on
the Executive Board. Instead of appointing an Executive
Director as the largest IMF shareholder nation, the United
States would use its substantial voting power to elect its
own representative on the Executive Board. IMF members
also committed to maintain a 24-member Executive Board
Source: Institute for International Finance, adapted by CRS graphics
and reduce by two the number of Executive Directors
specialist Amber Wilhelm.
representing advanced European economies.
What is the Quota and Governance
Arguments for and Against the Reforms. Proponents
Reform Package?
argue that the quota and governance reform package is
necessary for maintaining the effectiveness and legitimacy
of the IMF. They contend that the under-representation of
Quota Increase and Voting Shares. The reforms would
emerging economies reduces the ability of the IMF to
increase IMF quotas to approximately $736 billion and
constructively engage its full membership on policy issues
rollback contributions made in 2009 to the NAB. This
such as global macroeconomic surveillance, developing
change would add less than $80 billion to total IMF
policies on global capital flows, and sovereign bankruptcy,
financing available to the IMF. China, Brazil, Korea, and
among other issues. They further argue that it is better to
Turkey, would see the largest increase in quota shares
embed countries such as Brazil, China, India, Indonesia,
(Figure 2). In total, 6% of total quotas and voting power
Korea, Mexico, Russia, and South Africa in the IMF, rather
would shift to emerging market and developing countries.
than risk them setting up alternatives to the IMF.
Figure 2. Changes in IMF Quotas (Percentage Points)
Opponents of the reforms argue that the IMF has sufficient
resources to address financial crises through the expansion
of the NAB. Some opponents are also skeptical that
emerging economies support the existing norms and values
of international financial institutions. Any reforms
increasing the voice and participation of emerging markets
at the IMF, they argue, might result in the support of IMF
policies that are less aligned with the preferred policies of
advanced economies.
For more information, see CRS Report R42844, IMF
Reforms: Issues for Congress, by Rebecca M. Nelson and
Martin A. Weiss and CRS Report R42019, International
Monetary Fund: Background and Issues for Congress, by
Source: International Monetary Fund, adapted by CRS graphics
Martin A. Weiss.
specialist Amber Wilhelm.
Martin A. Weiss, mweiss@crs.loc.gov, 7-5407
Under the proposed reform package, total U.S. financial
IF00015
commitments to the IMF would not increase. Instead, about
$63 billion of U.S. financial commitments would be
transferred from the NAB to quota. The total U.S. financial
www.crs.gov | 7-5700

Document Outline

Overview

The IMF and the Global Economy