US finally agrees to the IMF governance reforms

Five years after the IMF Board of Governors approved the historic quota reforms of the IMF, the US Congress has given consent to it on December 18th.

The Congress has passed the quota reform after rejecting the IMF Board of Governor’s decision several times during the last five years.

IMF’s voting pattern is peculiar as it gives vote share (and the quota or share of money that a member country has to give to the IMF) in accordance with the economic weight of members.

Every important decision including the quota reforms need 85% of votes in the IMF. The US has nearly 17% of the total votes and that gives it a veto power. In the US, international treaties need the consent of the US Congress.

The Fourteenth Quota Revision was an important one in the history of the IMF. Firstly it doubles the IMF’s total fund contribution from members or the so called quota. The total quota with the Fund that is used to give loans to the member countries will rise to SDR 476.8 billion from SDR 238.4 billion.

But the vital decision of the 2010 fourteenth quota revision was not the increase in the total funds. Rather it reallocated quota shares of members in accordance with the changed economic weights. As a result, emerging market economies including India have got higher shares with a corresponding decline for that of the European countries. An increase in quota means an increase in voting shares in the IMF.

The emerging market and developing economies have got 6% increase in quota. Lead gainer was China- a long term dissident of the IMF governance reforms. China has got 2.4% additional voting share which is almost equivalent of India’s present voting share. China is the third largest quota holder in the fund with 6.39% of the quotas just behind Japan (6.46%).

India is seventh largest gainer of the quota revision with 0.31% increase in quota share and the total quota for India is 2.75% (eighth position). Four emerging market economies including Russia and Brazil come into the top ten quota holding counties. There are four European powers as well in the top ten besides the US and Japan.  

The US was blocking the 2010 revision as it feared that a future revision will considerably weaken its veto power brining down the vote share to 15%. US stand invited strong criticism from the developing world and China has launched the AIIB and NDB with supports from like-minded people including India.

Ratification to the 14th quoata reform is a significant change in the approach of the US towards the restructuring of the Brettonwoods institutions that the West has created seven decades ago. Similarly, it is a signal from the most powerful economy to acknowledge the rise of the new economic heavyweights like China.