Q. IMF's quota system: Discuss the issues related to IMF quota reforms give India more voting rights
Related to : GS Paper-3
Ans :
Introduction-
Finance Minister Arun Jaitley has expressed disappointment over the slow pace of IMF quota reforms and said any further delay would erode the legitimacy and credibility of the multi-lateral organisation.
"We are disappointed that the deadline for completing the 15th GRQ (General Review of Quotas) has been pushed back to no later than the 2019 annual meetings," Jaitley added.
Quota System-
Quota subscriptions are central to the IMF’s financial resources. Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy and its financial commitment to the IMF.
Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account. The largest member of the IMF is the United States, and the smallest member is Tuvalu.
India’s share has now increased to 2.75% from 2.44%, making it the eighth-largest shareholder in the quota system.
|
IMF member countries |
Total Vote (%) |
|
1. USA |
16.73% |
|
2. Japan |
6.23% |
|
3. Chin |
6.16% |
|
4. Germany |
5.39% |
|
5. UK |
4.09% |
|
6. France |
4.09% |
|
7. Italy |
3.06% |
|
8. India |
2.67% |
|
9. Russia |
2.63% |
|
10. Brazil |
2.25% |
|
currency |
weight |
|
US Dollar |
41.73% |
|
Euro |
30.93% |
|
Chinese Yuan Renminbi |
10.92% |
|
Japanese Yen |
8.33% |
|
pound sterling |
8.09% |
IMF QUOTA: Role in IMF
A member's quota determines that country’s financial and organizational relationship with the IMF, including:
Subscriptions:It can be called subscription fee that a member have to pay when member joins IMF and subscription is decided by help of IMF quota. A member must pay its subscription in full upon joining the Fund: up to 25 percent must be paid in SDRs or widely accepted currencies (such as the U.S. dollar, the euro, the yen, or the pound sterling), while the rest is paid in the member's own currency.
Voting power:IMF quota determines voting power of any member in IMF decisions. Each IMF member’s votes are comprised of basic votes plus one additional vote for each SDR 100,000 of quota. The number of basic votes is fixed at 5.502 percent of total votes under 2008 reforms which is almost 3 times higher than basic votes percentage in previous quota system.
Access to finance from IMF:IMF quota is used to decide amount of finance a member can obtain from IMF. For example, under Stand-By and Extended Arrangements, a member can borrow up to 200 percent of its quota annually and 600 percent cumulatively. However, access may be higher in exceptional circumstances.
Analysis-
1-Quotas determine the size of contingency funds at the disposal of the IMF to lend to countries in need of help, as well as the power of individual countries to influence lending decisions and tap into the funds themselves.
2-The current quota system is controversial one, which sheds light on the problems facing the Bretton Woods institution (IMF and World Bank in today’s global economy.
3-Though developing countries hold less than half the overall quota at the moment, with their rapidly increasing economic heft they have demanded a greater share.
4-India has been pressing for IMF quota reforms as it would give more say to developing nations in the activities of the multi-lateral organisation. It has warned that delay in quota reforms will erode the credibility of IMF.
5-The recent attempt to revise the size and composition of the quota system, was to be completed by October 2017, but the deadline has now been extended to 2019. The delay will erode the confidence of developing nations.
6-Last year the developing countries have been allotted an additional 6% of quotas. But with the rise of competing global institutions ready to meet the capital needs of the developing world, the quotas for developing countries like India must be enhanced.
7-Last year India’s voting rights increase to 2.6 per cent from the current 2.3 per cent, and China’s, to six per cent from 3.8, as per the new division. Russia and Brazil are the other two countries that gain from the reforms.More than six per cent of the quota shares will shift to emerging and developing countries from the U.S. and European countries. The reforms also increase the financial strength of the IMF, by doubling its permanent capital resources to SDR 477 billion (about US$659 billion).
8-Today, the developing world is looking beyond the short-term crisis management tools that the IMF, as the sole international lender of last resort, has traditionally offered them for decades now, albeit in an unsatisfactory and politically biased way.
9-In the current environment of competition, the IMF will have to do more than just superficially tinker with its asymmetric power structure and outdated quota system. Else, it could be slowly but steadily pushed into irrelevance.
Conclusion-
The quota system of is most controversial due to its asymmetric power structure. Today the world is looking towards developing countries due to their fast growing economy, but their say in IMF is minimal. Hence considering the current economic scenario there is an urgent need to make comprehensive reforms in the current quota system.