Quota with IMF is the central point of a member’s financial and organizational relationship with the IMF. Quota determines the amount of fund that a country has to give to the IMF, the voting share it can enjoy and the amount of loans it can take from the IMF. A country’s quota with IMF is largely determined by the relative economic weight (mainly GDP) of that country.
Quotas are denominated in Special Drawing Rights which is the reserve currency of the IMF. The largest member of the IMF is the United States, with a current quota (as of January 25, 2016, after 14th quota revision) of SDR 42.1 billion (about $58 billion), and the smallest member is Tuvalu, with a current quota of SDR 1.8 million (about $2.5 million).
Understandably, members’ economic weight changes after few years. To accommodate this changing situation, the IMF has also a provision to review quota of member countries. The IMF’s Board of Governors conducts general quota reviews at regular intervals (usually every five years). Any changes in quotas must be approved by an 85 percent majority of the total voting power, and a member’s quota cannot be changed without its consent.
The Fourteenth Quota Review
The latest quota reform was proposed in 2010 under the fourteenth quota revision, with drastic changes in quota allocation among members as well as a doubling of IMF’s quota. Since quota is subscriptions of members or fund to IMF, doubling of quota means doubling of financial resources for the IMF.
Similarly, an increased quota for a member indicates increased voting power and its role increases in the governance of the Fund. The emerging market countries like India were demanding a reallocation of quota so that the IMF reflects the increased economic weight of emerging market economies.
In this sense, the Fourteenth quota reform of the IMF was a historical one because it has restructured governance of the Fund by giving more weights to the developing countries.
Under the fourteenth quota reform IMF has made two sets of reforms. First was the quota reform and the second reform of the Executive Board.
Reform of the executive board: all elected executive board
The Executive Board (the Board) is responsible for conducting the day-to-day business of the IMF. It is composed of 24 Directors, who are elected by member countries or by groups of countries, and the Managing Director, who serves as its Chairman. The Board usually meets several times each week. It carries out its work largely on the basis of papers prepared by IMF management and staff.
An all elected board of executive is the main feature of the fourteenth quota reform with all 24 members are elected and no appointed members. Previously five members of the executive board were appointed by developed countries.
The Board Reform Amendment was part of a broader package of quota and governance reforms of the Fund.
Quota reform and the gain for emerging market economies
As a result of the 14th quota reform, a doubling of IMF quotas and a major shift in quota shares toward dynamic emerging market and developing countries has occurred. The share of emerging market economies increased at the expense of mostly European countries and Saudi Arabia.
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%). For the first time four emerging market countries (Brazil, China, India, and Russia) will be among the 10 largest members of the IMF. Other top 10 members include the United States, Japan, and the four largest European countries (France, Germany, Italy, and the United Kingdom).
India is seventh largest gainer of the quota revision with 0.31% increase in quota share and the total quota for India is 2.77% (eighth position) and 2.69% vote. 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.
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. The reforms altogether increased the financial strength of the IMF, by doubling its permanent capital resources to SDR 477 billion.
Executive board reform and acceptance
In order for the proposed amendment on reform of the Executive Board to enter into force, acceptance by three-fifths of the Fund’s 188 members (or 113 members) having 85 percent of the Fund’s total voting power is required.
Quota reform and its acceptance
For the quota increases under the 14th General Review of Quotas to become effective, the entry into force of the proposed amendment to reform the Executive Board is required. Effectively, this means that 85% vote holding members should ratify the quota reforms.
The main hurdle for the implementation of the quota reform was objection from the US. With the US Congress ratifying the quota reforms, sufficient votes were obtained and the quota reforms were effective from Janualyr26, 2016.