IMF Quota and Governance Reforms

IMF Quota and Governance Reforms

Updated December 17, 2015
IMF Quota and Governance Reforms
Overview
available quota resources and borrowing. The main
The International Monetary Fund (IMF, the Fund) is a
borrowing arrangement, the New Arrangements to Borrow
multilateral organization focused on the global monetary
(NAB), is a set of credit arrangements between the IMF and
system. In December 2010, the United States and the other
38 member countries that can provide about $514 billion of
IMF member countries agreed to a reform package. It
supplementary resources to the IMF. Member countries also
addresses two major concerns about the institution: (1) the
have established bilateral loan or note purchasing
representation of emerging and developing economies at
agreements with the IMF, which currently provide an
the IMF does not reflect their contribution to the global
additional $382 billion of financing to the IMF. Combining
economy; and (2) the size of the IMF’s financial resources
both quota and provisional resources, total IMF resources
has not kept pace with increased economic activity in the
are approximately $1.23 trillion.
global economy.
IMF rules call for a review of quotas every five years to
The reform package would double the IMF’s capital base
ensure that total IMF resources are adequate and that
and update its governance structure. Specifically, it would
countries’ quotas reflect their relative share in the global
increase IMF member contributions (known as quota) and
economy. Despite major growth and change in relative
voting power of developing and emerging market
contributions to the global economy, there has not been a
economies; reduce the total voting power of European
major quota increase since 1998.
countries; and reduce Europe’s representation on the IMF’s
Executive Board, its main governing body.
What is the Quota and Governance
Reform Package?
As introduced in December 2015, the FY2016 Omnibus bill
Quota Increase and Voting Shares. The reforms would
includes language that would authorize and appropriate an
increase IMF quotas to approximately $736 billion and roll
increase in the U.S. quota at the IMF, as well as authorize
back contributions made in 2009 to the NAB. China, Brazil,
the executive branch to vote in favor of the governance
South Korea, and Turkey, would see the largest increase in
reforms.
quota shares (Figure 2). In total, 6% of total quotas and
voting power would shift to emerging market and
As currently structured, the two components of the 2010
developing countries.
reform package—the quota and governance reforms—are
interlinked, and cannot be implemented separately. A
Figure 1. Changes in IMF Quotas
double majority of the IMF membership (measured by
(percentage points)
voting power and number of total members) is required to
adopt the reforms. For the quota increase, IMF members
representing at least 70% of IMF contributions must
consent to the increase and the governance reforms must be
approved. The governance reforms must be agreed by
three-fifths of the IMF’s 188 members (113 members)
having 85% of the IMF’s total voting power.
In many cases (including the United States) the reforms
require parliamentary approval or authorization. Since the
United States has voting power of 16.74%, the quota and
governance reforms cannot take effect without U.S.
ratification by the United States. Furthermore, enough

countries have already approved the measures that U.S.
Source: International Monetary Fund, adapted by CRS graphics
approval would allow the IMF to proceed with the reform
specialist Amber Wilhelm.
package. Depending on the budgetary treatment of any new
authorized U.S. contributions to the IMF, appropriations
Under the proposed reform package, U.S. financial
may also be required.
commitments to the IMF would not increase. Instead, about
The IMF and the Global Economy
$56.7 billion of U.S. financial commitments would be
transferred from the NAB to quota. The U.S. current quota
Total IMF quota contributions are approximately $331
commitment (about $58.5 billion) would approximately
billion. However, this figure represents just over 25% of the
IMF’s a
double to $115.2 billion. The U.S. commitment to the NAB
vailable resources. In addition to its quota
(about $95.9 billion) would be reduced to $39.1 billion.
resources, the IMF maintains standing multilateral
borrowing arrangements to temporarily supplement
https://crsreports.congress.gov

IMF Quota and Governance Reforms
Governance Reforms. Day-to-day authority over IMF
NAB, reducing the U.S. commitment to the NAB to $39.1
general operations is handled by a 24-member resident
billion. The proposed legislation also includes language that
Board of Executive Directors. There are presently two
would sunset U.S. contributions to the NAB in December
categories of Executive Directors, appointed and elected.
2022. Any U.S. participation in the NAB following this
Under current rules, the five countries with the largest
date would require future congressional approval.
quotas appoint their own Executive Director.
Policy Requirements
The reforms would eliminate appointed Executive Directors
End the “Systemic Exemption.” The FY2016 Omnibus
and require that all Executive Directors be elected. Since
measures mandates that the transfer from NAB to quota
Germany, France, and the United Kingdom will likely
cannot go forward until Treasury certifies it has taken “all
continue to be among the five largest contributors to the
necessary steps” to seek the elimination of the IMF’s
IMF, the reforms allow for potential future consolidation of
“systemic exemption” policy, introduced in 2010 to
European representation on the Executive Board. For the
facilitate the IMF’s Greek lending program. This exemption
United States, this reform has no practical impact on its
allows the IMF to approve large-scale lending programs to
ability to have its representative on the Executive Board.
a country, despite concerns about the country’s debt
Instead of appointing an Executive Director as the largest
sustainability, if there is a high risk that not providing
IMF shareholder nation, the United States would use its
financial assistance would have spillover effects to other
substantial voting power to elect its own representative to
countries and potentially destabilize the global economy.
the Executive Board. IMF members also committed to
maintain a 24-member Executive Board and reduce by two
Recent IMF loans to Greece, Portugal, and Ireland would
the number of Executive Directors representing advanced
likely not have been justified in the absence of the
European economies.
“systemic exemption,” which was introduced in 2010, In
recent years, IMF staff has supported eliminated the
Arguments For and Against the Reforms. Proponents
“systemic exemption,” and proposed other reforms to
argue that the quota and governance reform package is
increase the IMF’s ability to provide support to highly-
necessary for maintaining the effectiveness and legitimacy
indebted, systemically important countries.
of the IMF. They contend that the under-representation of
emerging economies reduces the ability of the IMF to
Exceptional Access Consultations. The FY2016 Omnibus
constructively engage its full membership on policy issues
measure also would require that the U.S. Executive Director
such as global macroeconomic surveillance, developing
at the IMF consult with Congress in advance of approving
policies on global capital flows, and sovereign bankruptcy,
large IMF loans. Treasury also would be required to submit
among other issues. They further argue that it is better to
a report to Congress providing a debt sustainability analysis
embed countries such as Brazil, China, India, Indonesia,
and documentation justifying the loan.
South Korea, Mexico, Russia, and South Africa in the IMF,
rather than risk them setting up alternatives to the IMF.
Other Reporting Requirements. Three additional
reporting requirements are included:
Opponents argue that the IMF has sufficient resources to
address financial crises through the expansion of the NAB.
 The Congressional Budget Office would provide a
Some opponents are also skeptical that emerging economies
report on its method of incorporating market risk in its
support the existing norms and values of international
cost estimates of U.S. contributions to the IMF and
financial institutions. Any reforms increasing the voice and
consider options for reforming the budgetary treatment
participation of emerging markets at the IMF, they argue,
of future U.S. contributions to the IMF;
might result in the support of IMF policies that are less
aligned with the preferred policies of advanced economies.
 Treasury would be required to prepare an annual report
analyzing the current lending, surveillance, and
Congressional Action
technical assistance activities of the IMF; and
In its budget requests for FY2014, FY2015, and FY2016,
the Obama Administration included authorization and
 Treasury would be required to prepare a report on
appropriation requests for the United States to endorse and
improving U.S. participation in the IMF that include
ratify the 2010 reform package. During the spring of 2014,
analysis of IMF surveillance policies and products,
during debate on a Ukraine-assistance package, IMF
improving implementation of IMF policy
funding legislation was included in the Senate version of
recommendations, and analysis of the IMF’s
the bill but was removed prior to passage.
transparency policy, among others.
The FY2016 Omnibus Measure
Martin A. Weiss, Specialist in International Trade and
Following several years of negotiations between Congress
Finance
and the executive branch, the FY2016 Omnibus includes
Rebecca M. Nelson, Specialist in International Trade and
several IMF provisions. If enacted, the FY2016 Omnibus
Finance
would fully fund the increase in U.S. quota, which would
increase by an additional $56.7 billion to $115.2 billion. At
IF10134
the same time, the proposed legislation rescinds an equal
amount ($56.7 billion) from the U.S. contribution to the

https://crsreports.congress.gov

IMF Quota and Governance Reforms

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10134 · VERSION 5 · UPDATED